Health insurance does not necessarily translate into affordable healthcare.
Typically, people use their credit cards to help pay their medical bills, thereby shifting family budgets even further into the negative. Thus, not surprisingly, healthcare cost is one of the primary reasons people declare bankruptcy.
The stress from financial troubles can be just as devastating as coping with the physical and emotional challenges that accompany a serious illness. Between 2011 to 2014, roughly one in five persons under age 65 was in a family that had difficulty paying medical expenses in the past 12 months, and in 2015, the percentage of adults who delayed or did not receive needed medical care for cost reasons increased as the number of diagnostic conditions increased. And among insured with medical bill problems, a 2016 survey found that over 60 percent reported using most of their savings. Read more
Many people do research about bankruptcy prior to seeking out the services of a lawyer. They get on their computer and search for bankruptcy topics such as dischargeable debts, chapter 7 vs. chapter 13, or asset exemptions. Another area that is frequently researched, but is often misunderstood is the Means Test.
The Means Test was developed as part of the bankruptcy overhaul of 2005, and was included in the bankruptcy process to limit those individuals who could technically pay back their debts over time from simply getting the immediate benefit of a chapter 7 discharge. Essentially, the Means Test determines the monthly amount of income an individual can earn each month (as calculated over a 6 month average) and still qualify for a chapter 7 discharge. That monthly average is then expanded into a yearly average. The income limits are based on tables and vary state to state. The Washington Means Test table can be found here.
But even if an individual has a yearly gross income that exceeds the tables provided by the US Department of Justice, that only creates a “presumption of abuse.” Meaning, there could be abuse in the filing, but an abuse that can be rebutted. Some individuals may technically not qualify based on the Means Test income tables, but due to their current, and forward looking, situation, could defeat the presumption of abuse and remain in chapter 7.
This is yet another reason why it helps to consult with a professional when it comes to bankruptcy. Don’t write off the possibility of a simple chapter 7 discharge just because you might make too much money.
1) You have to be broke to file bankruptcy.
FALSE. This type of thinking about bankruptcy leads people to be broke going into bankruptcy, and broke coming out of bankruptcy. The best way to approach bankruptcy is to file before you get to a point that it is your only option and before liquidating all of your assets, like savings accounts, retirement accounts, or physical assets like your home or car. The state of Washington, and certain federal exemptions, allow you to keep assets up to a certain value. In the case of retirement accounts, there is almost no cap on the amount you can keep and still file bankruptcy.
2) You can modify your home loan in bankruptcy.
FALSE. Many homeowners have been lead to believe (mostly at the guidance of fly-by-night home loan modification companies) that they can seek a modification of their home loan in the bankruptcy court. This cannot be done. In fact, lenders must get relief from the bankruptcy court and remove the home from the bankruptcy estate in order to proceed with any type of permanent modification. If you’re going to pursue a modification, pre-bankruptcy, set your mortgage payment aside in an separate account. If the modification falls through, you’re going to need that money to bring your mortgage current in the bankruptcy setting.
3) Filing bankruptcy harms your credit score.
FALSE. Filing bankruptcy is actually the quickest, most effective way to improve your credit score. Your credit score is calculated based on your debt to income ratio. In bankruptcy, you discharge your debts. As long as your income remains the same, you now have a much better debt to income ratio, which increases your score. You can estimate a 60-100 point increase, if your score is in the high 500’s to low 600’s, within the first 6 months after filing.