Dear Liz: I was involved in a car accident and had no medical insurance. The hospital bill came to $39,000 and a helicopter ride was $15,000. The only way I could pay this was using credit cards. I have high credit scores. Am I better off filling for bankruptcy?
Answer: You were better off not using the credit cards. If you hadn’t charged your medical bills, you probably could have negotiated a lower settlement amount with the hospital and medical evacuation company.
In many cases, people without insurance are initially charged more than those whose insurance companies have negotiated lower rates. We’re not talking minor discounts, either: The “sticker price” for hospital care for an uninsured person can be two or three times the price paid by insurers, according to the National Consumer Law Center.
Medical providers in these situations are often willing to settle for the lower, negotiated rate, but you have to ask.
Also, most hospitals have charity programs that could have paid some of the cost if your income isn’t high. A typical charity program would erase bills for people whose incomes equal 200% or less of federal poverty limits, and would offer discounts for those with incomes up to 400% of those limits.
Even if you didn’t qualify for the charitable program, a close review of your bill might have turned up errors that, if corrected, could have lowered your cost.
Furthermore, most medical providers have payment plans that would have allowed you to reduce your debt over time at a much lower interest rate than what you’re probably paying on your cards.
Now that you’ve charged these bills, you have to make a realistic assessment of whether you can pay them off within five years. If not, bankruptcy may be a better option. A Chapter 7 liquidation would allow you to erase unsecured debts such as medical and credit card bills, but may not be available if your income is too high. In that case, a Chapter 13 repayment plan would require you to repay some of your debt over the next five years and erase any remaining bills after you completed the plan.
Alternatively, you might negotiate a settlement with your credit card companies.
Any option other than paying your bill in full will trash those excellent credit scores. The damage won’t be permanent, but it initially will be severe, and it may take several years for your credit to fully recover.