What do Unicorns, Wookies, and Medical Bankruptcies have in common?
Each is a figment of our imagination.
None of them exists in the real world.
Medical bankruptcy does not exist, despite the suggestion in a recent FoxBusiness article, where the author talked about medical bankruptcy contrasted to personal bankruptcy.
When it comes to medical bankruptcy, consumers need to look at it the same way they would for personal bankruptcy, which means their credit will take a hit for as long as 10 years depending on the type they file
The source of the debts in the bankruptcy may be consumer debt, business debt, or medical bills.
But the bankruptcy, the legal remedy for those debts, is personal.
And a person’s bankruptcy case addresses all of the person’s debts. No picking and choosing.
Included in bankruptcy
The idea that a bankruptcy case might include just selected debts may be promoted by the language of credit reports.
When a debt has been discharged in a bankruptcy case, the credit reporting agencies notes it as “included in bankruptcy”.
And maybe that’s the CRA’s way of fudging the fact that they really don’t know if the discharge extended to that debt. Debts may survive a bankruptcy case if the judge found, after trial, that the debt was not dischargeable because of the debtor’s bad behavior.
Or the debtor may have reafffirmed the debt.
But whatever the CRA meant, it doesn’t mean that the person filing gets to select the debts that are listed in the bankruptcy case.
Even when all of the troublesome debt in an individual’s case arose from running a business, any bankruptcy case filed to get relief from that debt is personal.
Medical debt as bankruptcy driver
The connection between ill health and bankruptcy was explored in a 2009 study by among others Dr. David Himmelstein and Prof. (now Senator) Elizabeth Warren. The study claimed that 62% of bankruptcy cases were caused by medical debt.
My four decades of bankruptcy practice hasn’t lead me to that conclusion. Medical bills may be present in lots of bankruptcies, but the precipitating cause of filing is far more often job loss or divorce.
As the middle class becomes more and more strained, most families’ ability to absorb even a single, substantial medical bill is reduced.
No hiding required
The idea of labeling your bankruptcy as “medical” or “business” may appeal to those who see bankruptcy as a failure. Maybe if you can link the unpleasant event to external forces, you’re relieved of responsibility.
Yet those labels are fictions.
A healthier reality is to give thanks for the availability of bankruptcy relief, gather whatever there is to be learned from the experience, and move forward.
That’s what the fresh start is all about.
Image courtesy of Jude Hill and Flickr.