Is Medical Debt Really The Leading Cause of Bankruptcy?

Earlier this month, former U.S. Rep. Patrick J. Kennedy made news when he claimed that out-of-control medical costs were the most common cause of personal bankruptcies in the United States. Kennedy made this statement while offering his support for President Obama’s health care act.

Kennedy’s assertion led many to wonder whether this was really true. Is medical debt actually the biggest contributor to Chapter 7 and Chapter 13 bankruptcies? Bigger even than job loss, foreclosure, credit card debt or any of the other myriad problems that came along with the current recession?

The fact-checking organization PolitiFact evaluated Kennedy’s assertion and labeled it “half true.”

PolitiFact talked with experts at the American Bankruptcy Institute, who verified that medical debt is “definitely a big cause” of personal bankruptcies. However, they also said that credit cards, layoffs, the death of a spouse and the current housing crisis are also common contributing factors.

PolitiFact then discovered a Harvard survey that found that 29 percent of respondents blamed their bankruptcies on overwhelming medical bills. However, 62 percent of respondents said that income loss or mortgage troubles related to an illness or injury played a role in their pre-bankruptcy financial problems.

Finally, PolitiFact looked to a 2011 report from the Institute for Financial Literacy. That organization surveyed bankruptcy filers and found that just over 70 percent reported that being “overextended on credit” was one of the leading causes of their financial troubles. By comparison, only about 31 percent blamed illness or injury.

Even if medical debt isn’t the leading cause of bankruptcy, it is still a major factor. People who are struggling with unaffordable medical bills should be aware that most medical debt can be discharged in bankruptcy. In fact, bankruptcy is sometimes the best way to recover your financial health after a major illness or injury.

Source: PolitiFact, “Former U.S. Rep. Patrick Kennedy says most bankruptcies in U.S. are due to health care costs,” July 13, 2012.

For more information on using bankruptcy to seek relief from unaffordable medical bills, please see our Bankruptcy & Medical Debt resource page.

Related Posts: New Jersey Senator: Fix Medical Debt Reporting, Suit Alleges Medical Debt Collectors Are Holding Patients Hostage

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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