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What Is Medical Bankruptcy?

Medical bankruptcy is when a person is in debt because of bills related to a serious injury or illness.
The high cost of prescription medication can contribute to medical bankruptcy.
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  • Written By: Allison Boelcke
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 December 2014
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Bankruptcy is a legal declaration of a person’s complete inability to pay his or her debts. The precise legal bankruptcy processes typically differ between countries, regions, and states; however, they generally involve an individual making an arrangement to have his or her debts pardoned in exchange for giving up personal possessions or agreeing to some type of payment arrangement. One of the most common reasons is known as medical bankruptcy, in which a person ends up in debt because of bills related to a severe illness or injury.

Medical bankruptcy tends to be more common in countries that do not have government-sponsored healthcare. People in these areas may purchase health insurance to cover their medical costs if they have the money or else they may choose to forgo insurance and foot the entire bill for their medical costs. Even those with health insurance may still be responsible for any medical costs that the insurance company denies. If an unexpected illness or injury occurs, a person may find he or she cannot afford all of the bills for office visits, laboratory testing, prescription drugs, or surgeries.

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The process of declaring medical bankruptcy is typically long and drawn out. There are various other options that someone can look into first. In some regions, hospital or insurance billing departments may be more lenient if a person attempts to pay even small portions of the bill over an extended period of time. He or she can also try to negotiate smaller fees or even ask for charitable donations.

If a person is unsuccessfully able to make payments or figure out any other solutions to resolving the medical debt, he or she may choose to file for bankruptcy. A judge will review the debts and the person’s personal property or other financial assets to determine if he or she qualifies for bankruptcy according to that area’s specific bankruptcy laws. If the bankruptcy judge rules that the person is eligible for bankruptcy, he or she is no longer responsible for paying the medical bills in full.

Although declaring medical bankruptcy can decrease the amount of debt a person has, it can also have some possible disadvantages. People who have been officially declared bankrupt may have difficulty being approved for any type of loan or credit for a number of years afterward. Most areas have laws limiting how often a person can declare bankruptcy. Therefore, people are generally recommended to use bankruptcy only as a last resort because if new debts occur afterward, he or she may not that option available.

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