Bankruptcy Filings Down by Almost Half Between 2010 and 2016

March 16, 2018

Affordable Care Act May Be a Large Part of the Reason

It can be heartbreaking to file for bankruptcy. After all, when you file for protections under the Bankruptcy Code, you are essentially admitting that you owe more than you can afford to pay. This means, depending on the type of case you file, that your creditors may not be getting paid. The results will last for years. Your credit will be damaged for a long time, and the bankruptcy will be reported on your credit reports for 10 years.

Still, about 1.7 million people live in households that file for bankruptcy each year, according to Nerd Wallet. The same report suggests that according to 2009 research from Harvard University, roughly 61 percent of all bankruptcies are at least partially attributable to medical debt. But a lot has happened since 2009.

Has the Affordable Care Act (ACA) Lowered the Number of Medical Debt Bankruptcies?

Research tends to suggest that the Affordable Care Act has indeed lowered the number of bankruptcy filings due to medical debt. According to Consumer Reports, two other factors helped with this decline: tighter rules on who can file for protection and sharp improvements in the economy. Notably, there were around 1.5 million personal bankruptcies (Chapter 7 and 13, as opposed to business filings under Chapter 11) filed in 2010.  In 2016, that number dropped to just 770,846.

It’s Impossible to Attribute Bankruptcy to One Type of Debt or Attribute Improvement Solely to Affordable Care Act

While it may be true that a lot of bankruptcy filers have medical debt, they usually also have other debts. Many times, a family will have a large amount of medical debt, which could be negotiated or otherwise resolved without the need for bankruptcy. However, the existence of other debts tips the scale in favor of filing for protection under Chapter 7 or Chapter 13.

Therefore, although medical debt is likely one of the biggest causes, we should also be careful to acknowledge that it is generally the type and combination of debts that lead people to file for bankruptcy. Rarely does someone make the decision based on a single debt. Likewise, the fact that more people are insured may be reducing the amount of medical debt responsible for bankruptcies. On the other hand, stricter filing rules have also made more people ineligible for protection.

Most Common Bankruptcy Causes

Medical Debt

Despite improvements in the economy and more insured individuals under the Affordable Care Act, medical debt still plays one of the biggest roles in many bankruptcies. Of course, this may also be because medical debt is usually due to an extended illness, which may accompany job loss. These factors typically work in tandem to lead to a reduced income.

Job Loss

Whether due to illness, injury, or other circumstances, the loss of regular income can lead to bankruptcy. Bankrate estimates that about 76 percent of Americans live paycheck to paycheck. Miss a few, and bankruptcy looms.

Extended Illness

An extended and unforeseen illness can lead to loss of income, high medical debt, and even job loss.  This is why it is so important to build up a rainy day fund worth at least three to six months of expenses.  

Divorce

Divorce can be quite expensive. Many couples find that with increased costs, two separate residences, and legal fees associated with their divorce, bankruptcy is the only way to get a clean start.

Foreclosure

Some families may have other options for resolving debt, but once a home begins the foreclosure process, it can be terrifying. Losing a home means losing years of hard work and equity and can even mean children changing schools. Chapter 13 bankruptcies allow families to protect their homes by catching up on payments and spreading the repayment of other debts over three to five years.

Greenville Bankruptcy Help

For those living in Greenville, SC and the surrounding areas, bankruptcy may be an option. If you are swimming in credit debt, have unmanageable medical bills, or have been served with a foreclosure notice, you need legal help now. David Aylor Law Offices can offer helpful support and answers to guide you through your bankruptcy options. Don’t try to negotiate with creditors yourself without first speaking to an attorney.

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