While there is no such thing as a “medical bankruptcy,” that is, a bankruptcy that includes only medical bills, more and more people are filing for bankruptcy because of medical bills.

A November 25, 2009 article in The New York Times, “From the Hospital Room to Bankruptcy Court,” talks about the ever-increasing number of people who are forced into bankruptcy as a result of medical bills and health issues.

It is noteworthy that most of the people who have to file for health/medical reasons have health insurance. It’s the co-pays and deductibles, which can run into the tens of thousands of dollars, that do them in.

Americans cannot turn on the television, or pick up any magazine or newspaper without hearing more about the mortgage foreclosure crisis. But for homeowners who are behind on their mortgage payments this is not a pop culture phenomenon, this is their reality. Many are in arrears, falling deeper in debt to the lender every single day, and unsure of what solutions exist to help them save their home.

There are more than a handful of things which can be done to try to save the home. Some resolutions exist in bankruptcy, many outside of bankruptcy, all of which require effort, sacrifice and some knowledge on the part of the homeowner to take proactive steps to avoid foreclosure.

First of all, believe it or not, the bank does not want your house. That being said, they also must work within certain parameters in terms of what options they have to offer to homeowners. Read the rest

As my colleague Kevin Gipson pointed out not so long ago, there’s no such thing as a “medical bankruptcy.”  There’s no box you check on the bankruptcy petition for “medical bankruptcy.”  You must list all your debts, including medical debt.  There are, however, many bankruptcy cases where medical debt contributed to–or was even the primary cause of–the debtor’s need to file bankruptcy.

The debate about the connection between medical debt and bankruptcy has being raging for a long time.  The American Journal of Medicine recently published a study showing that medical debt has contributed to over 60% of bankruptcies.  In the vast majority of these cases debtors had other kinds of debt as well, such as credit cards and taxes.  But they also had at least some medical debt.

The study has been used to support health care reform.  And those who oppose health care reform have attacked the study.  One such attack went so far as to claim that “medical bankruptcy is a myth” and that “[t]here is no evidence to indicate that a government-run healthcare system in the United States will reduce personal bankruptcies.”

Oddly, the author admits that studies show that medical debt was a contributing factor in 17% of bankruptcies.  The last time I checked 17% was quite a bit more than zero.  How could it be, then, that universal coverage would not “reduce personal bankruptcies”?

I recently had a client come in with $175,000 in medical debt.  Ironically but not surprisingly, she accumulated much of the debt during a time when she had health insurance but while her condition was excluded as a pre-existing condition.

I also saw a man a few months ago with approximately $150,000 in medical debt.  During his first bout with heart disease, he had no health insurance and accumulated significant debt as a result.  He then tried to obtain insurance, but the health insurance companies denied him coverage.  He then had another heart attack, which produced even more medical debt.

Ask any bankruptcy attorney and he’ll tell you he sees plenty of cases where medical debt is a contributing factor in the bankruptcy filing.  Is it 60% or is it 17%?  I really don’t know.  We shouldn’t be proud of either number.

Medical bankruptcy does not exist in countries with universal health coverage like Japan, Canada, Great Britain, Taiwan, Germany, Italy, Switzerland, Sweden, Norway, Austria, Finland, and France, just to name a quick dozen.  But, here in the wealthiest, most powerful country in the world, medical debt forces many people into bankruptcy.

And let’s think about all that medical debt.  Where does it go?  We can’t afford to cover the 47 million Americans without insurance, or at least that’s what we’re told.  But what happens to that $175,000 of medical debt my client will discharge in her Chapter 7?  What happens to the other $150,000 my other client will discharge in his Chapter 7?

To quote the late David Davidoff, an outstanding bankruptcy attorney in Kalamazoo, Michigan for several decades, “the good must pay for the bad.”  He wasn’t talking about health care; he was talking about business costs.  And it doesn’t matter what business you are in.  It’s all the same.  If you don’t get paid for goods or services from some clients, you must charge more from other clients.

We have a non-system where more and more people can’t afford health insurance or can’t buy it even if they can afford it.  They go without, and when something goes wrong, they can’t pay.  Doctors must make a certain amount of money, as must hospitals, labs, and pharmaceutical companies.  So they charge more to those who can pay.  Those of us fortunate enough to afford policies are part of the shrinking number of Americans who can still pay for health insurance.

The result is that costs escalate, insurance premiums go up, more people can’t afford to pay the premiums, those people become uninsured, medical providers don’t get paid to treat those patients, so medical providers charge more, insurance goes up….you get the picture.  It’s not difficult to diagnose the problem.

Everyone uses the health care system, whether they have insurance or not.  The law mandates that they must be treated.  Just go down to your local emergency room to see this “system” in action.  However, unless we come up with a way to make everyone pay for using the system, it will eventually collapse.

The only means of doing this is by universal coverage, whether by use of private insurance or by using some single payer system.  We know everyone is already using the system.  We must now allow everyone to pay for it.  Let’s hope politics will be set aside long enough to come up with a solution to this problem before it gets worse.  Medical bankruptcy is not a myth; it’s a sad reality for far too many Americans.

Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 bankruptcy.

My second of five questions for a client with a troubled business is Could the business prosper if it wasn’t servicing old debt?

Often, recent improvement in business operations is masked by the amount of debt it is servicing from past, less robust periods.  I want small business people to look at current operations and current expenses.  Can business revenues this month cover the expenses of this month’s operation?  If so, the business may have a future.

This analysis is most powerful where the  business is a corporation financed on the owner’s credit cards. Most often, the corporation is not actually liable on the credit card.  The corporation’s name may be embossed on the plastic, but the corporation has not signed an application for credit.

A bankruptcy by the owners will not directly affect the corporation at all.  The owner’s bankruptcy estate will include the stock in the corporation, but not the business itself.

When the business is a sole proprietorship, a Chapter 13 may leave the business owners in control of the business, with all of the debt existing at the point of bankruptcy filing included in the bankruptcy and slated for discharge at the end of the plan.

There are 94 different federal judicial districts.  Each of them allows the filing of bankruptcy cases, usually in the bankruptcy court although bankruptcy cases can be handled by the federal district court as well.  A federal statute, 28 USC 1408(1) specifies where a bankruptcy case may be filed.  For a person, in most situations it is obvious where the case should be filed.  Most cases are filed where the individual has lived for more than the last three months prior to the date of filing.  The statute provides for filing in the district

“in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of the case have been located for the one hundred eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than … in any other district.”

This statute applies to all types of bankruptcy, from chapter 7 through chapter 13.  This proper place of filing is called “venue” for the proceeding.

Venue is generally considered to be “permissive” in that it is considered proper wherever the case is filed unless someone objects.  A bankruptcy case filed in one district can be moved to another district for the convenience of the parties to the proceeding or if the interests of justice are served by moving the case.  Rule 1014 of the Federal Rules of Bankruptcy Procedure governs transfer of cases.  It permits the judge to either dismiss the case or transfer it if it was filed in a district that fails to meet one or more of the requirements of the statute.

A recessionary economy marked by restrictive consumer spending necessarily translates into a cash-flow problem for smaller businesses.  Reorganization under Chapter 11 of the Bankruptcy Code could provide the necessary “breathing space,” allowing a small business to get current with its vendors, lower the company’s costs of goods sold, and right-size the business’s balance sheet for continued viability and preservation its “core business.”

I recently sat down with Jacksonville business bankruptcy lawyer Brett Mearkle for an explanation of the “small business bankruptcy.”

According to Mearkle, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (”BAPCPA”) enacted several changes to several provisions of the bankruptcy code relating to a “small business” bankruptcy case. Overall, it is clear the new provisions provide smaller businesses the direction needed to successfully emerge from Chapter 11, leaving the core business in tact for continued corporate existence. Read the rest

When I ask a client how much credit card debt he or she has, I often get a confused look followed by: ” Do you mean just the debt I want to include in my bankruptcy?” or “Do you mean just the debt I am behind on?” or something similar.    No, what I mean is – how much total credit card debt do you have.  This is an important question as it may affect the advice I give you for your particular situation.

Additionally, if you decide to file for bankruptcy, you cannot pick and choose which creditors to include in your case.  You MUST list EVERYONE you owe money to – even if it is a debt you want to continue to pay – like your home or car.  If you don’t list a creditor, that debt may not be discharged.  Further, you are signing your schedules under penalty of perjury that you have listed ALL of your debts.  If you didn’t list all of them, you are committing  a bankruptcy crime.