Why the stigma of bankruptcy when medical debt is the # 1 cause?
SALT LAKE CITY – A stigma surrounding bankruptcy persists, despite the fact that the two main reasons people go bankrupt are (1) medical bills and (2) job loss – scenarios debtors may not not have control.
A survey reported by CNBC found that two-thirds of all bankruptcies were related to medical problems, either due to high costs of care or downtime from work.
A 2015 study by the Kaiser Family Foundation found that medical bills bankrupt a million American adults every year, and that 26% of Americans between the ages of 18 and 64 struggled to pay their medical bills, according to the World Population Review.
However, there is evidence that Americans have filed fewer bankruptcies in recent years and have been able to repay their debts during the COVID-19 pandemic.
So why does the stigma persist?
First the good news
The pandemic has closed shops and restaurants and closed workplaces as jobs dried up. Yet bankruptcies in America have plummeted during the foreclosure – 496,565 consumer bankruptcy claims were filed last year. That’s the lowest number since 1987. And that’s a 31% drop from 2019 according to MarketWatch.
The total number of new U.S. Chapter 7 and 11 bankruptcy cases filed for the 12 months ending June 30, 2021, was the lowest since 1985, according to the U.S. Courts Administrative Office.
The federal government’s stimulus package has helped prevent tenant evictions and put money in the pockets of the unemployed. It even allowed many to pay off existing debt. As of May 26, 2021, Uncle Sam had sent about $ 391 billion directly to taxpayers, bringing the total number of payments to nearly 167 million, CNBC reported.
A financial stain on your file
Why does he carry this stigma? Dave Noriega and Debbie Dujanovic asked Certified Financial Planner Shane Stewart of Deseret Mutual Benefit Administrators (DMBA).
âYou assume that whether it’s true or not, you assume that they mismanaged their money,â Stewart said.
âThat’s probably where the biggest stigma comes from. The other part of the stigma not only comes from mismanagement, but. . . it is assumed that this person is simply trying to keep their debtors dry.
The different types of bankruptcy
Stewart explained the two types of bankruptcy he deals with. The first one, Chapter 7 bankruptcy, allows the liquidation of assets to pay creditors.
Under Chapter 7, âYour unsecured debt is discharged, but you must liquidate some assets. Now, a lot of people are choosing that, in fact, over 70% of bankruptcies fall under Chapter 7 because often times they don’t have any assets to take, âsaid Stewart.
Chapter 13 is a reorganization of a debtor’s finances under the control and approval of the courts.
“This [Chapter 13] takes a little longer. You agree with the creditors to – over time – take some time and maybe pay less on payments until you can get your feet wet, âsaid Stewart, adding that ‘About 28% of U.S. bankruptcies are filed under Chapter 13.
But before depositing …
Before declaring bankruptcy, Stewart recommended seeking a nonprofit credit counseling service.
“There are even locally in the Wasatch Front that are funded by grants,” said Stewart. âThey help you try to reorganize your debt before you have to file for bankruptcy. I would try it first.
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