Medical costs are one of the main factors contributing to the need for bankruptcy relief in the United States. In fact, according to a study by researchers with Harvard Law School, medical debt accounts for over 62 percent of all bankruptcies.

The researchers surveyed over 2,000 individuals who filed for bankruptcy in 2007. Filers accumulated the debt either due to unaffordable medical bills or a loss of income due to an inability to work because of a disease or disability. Common medical causes for debt included multiple sclerosis, diabetes, injuries, stroke and heart disease.

The study also found most filers were middle aged, middle class, college educated adults. In addition, three quarters of these individuals had health insurance at the time the debt accumulated.

Tips to avoid medical debt

A strong health insurance plan can help provide a buffer against debilitating medical debt. Those in the study who had insurance but still needed to file for bankruptcy often had an inadequate level of coverage. This can be avoided by researching health insurance plans and choosing one that best suits your medical needs. It is also wise to choose a plan with National Committee for Quality Assurance accreditation.

Once the right plan is in place, follow the rules. Insurance companies often provide full coverage to in-network providers. Review the plan before scheduling appointments to make sure the provider you choose to see is fully covered.

If medical bills still become unmanageable, contact the provider and attempt to negotiate the amount owed. They may be willing to set up a payment plan or even reduce the bill.

Finding relief through bankruptcy

Even after these precautions are taken, medical debt can become debilitating. In these instances, bankruptcy may offer a needed fresh start. Bankruptcy laws are designed to protect people that can no longer manage their bills, either by liquidating assets to pay debts or developing a more manageable payment plan with creditors.

There are two main types of bankruptcy used by individuals who need help managing their debts: chapter 7 and chapter 13.

A chapter 7 bankruptcy petition liquidates all of the filer’s assets in order to pay off the debt. In situations where the debt is based in medical bills, the debt is discharged.

A chapter 13 petition creates a repayment plan that spans three to five years. The debt is categorized and paid in order of importance. Typically, medical debt falls low in the order of importance, similar to credit card bills, while child support payments and home mortgages are some of the first debts repaid. Debts that are not paid off upon completion of the court approved repayment plan are generally discharged.

Determining if bankruptcy is the right step for your financial future is difficult. Contact an experienced bankruptcy attorney to discuss your situation and better ensure your legal rights are protected.