Q: We are in quite a tight spot financially. We have extensive medical bills because of poor health insurance and high deductibles, along with past-due credit card bills, past-due taxes and a judgment that a creditor recently won against me in court. This creditor just placed a levy on our checking account, which of course is now overdrawn. There is no possible way for us to get caught up. We have four children and no assets. Is filing for bankruptcy protection an option?
A: Bankruptcy might be the best of bad options, but you’ll want to make up your mind fairly soon. The bankruptcy overhaul legislation that Congress passed this year takes effect Oct. 17, and some people will find it much harder to have their debts erased.
Your situation is not at all unusual. A recent Harvard University study found that half of all consumer bankruptcies were triggered by medical problems. Interestingly enough, about three-quarters of the people who filed medical-related bankruptcies had insurance when they became ill or disabled. They often lost their insurance after losing a job or, like you, had inadequate coverage and high deductibles that left them exposed to catastrophic bills.
Another way you’re in the mainstream of bankruptcy filers: You have kids. Harvard bankruptcy researcher Elizabeth Warren, coauthor of “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” found that having children is one of the leading predictors that a household will file for bankruptcy.
Ideally, everyone would have adequate insurance and savings to confront the inevitable setbacks life offers. When that’s not the case â€” and it often isn’t â€” you should look for alternatives, such as working a second job, trimming your budget and selling assets to pay your debts. If that won’t cover what you owe, a bankruptcy filing might be a better course than struggling forever with impossible debts.
An experienced bankruptcy attorney can apprise you of your options, and many offer free consultations. Good luck.