September 24, 2017

Eliminate Credit Card and Medical Debts in Bankruptcy

Most of my bankruptcy clients have credit card and medical debts they wish to discharge.  It is rare that a personal bankruptcy filing does not include both.

To understand the relationship between the two debts, Dēmos, a nonpartisan public policy research and advocacy organization, conducted the 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households this February and March.

Medical bills often lead to credit card debt

The survey clearly shows that unemployment and medical bills were among the leading contributors to credit card debt. We’ll focus on the medical bills here. After sampling 997 adults who had carried credit card debt for at least three months, Dēmos’ findings will probably sound familiar to everyone with financial problems:

  • The average credit card debt was $7,145 with $1,678 attributable to medical costs.
  • Nearly half of households carried debt from out of pocket medical expenses on their credit cards.
  • Among those who say they have poor credit, 55% say unpaid medical bills or medical debts contributed.
  • 47% of all indebted households said out-of-pocket medical expenses contributed to their credit card debt; among those who had experienced job loss.
  • Out-of-pocket costs for hospital stays, emergency room visits, and dental expenses were the most likely to contribute to contribute to credit card debt.
  • Prescription medications and visits to doctors contributed to the credit card debt of many households as well, with 46% of those who incurred out-of-pocket prescription costs and 43% of those who incurred out-of-pocket costs at a doctor’s office identifying these costs as contributing to their credit card debt.

Discharging your credit card debts and medical expenses in bankruptcy

Under North Carolina law, one spouse can be liable for the medical expenses incurred in providing necessary medical services to the other spouse. If you or your spouse have medical bills that you cannot pay, it’s a good idea to consult a bankruptcy professional for an bankruptcy counseling session to determine the best course of action to protect your finances.

I am frequently asked whether clients should borrow against retirement plans, or cash them out, to pay medical bills. I almost always advise against this, because most tax-deferred retirement accounts are exempt (out of the reach of creditors), and because of the burden of the tax consequences of early withdrawals.

Before succumbing to a medical debt collector’s tactics, learn your legal rights.