Medical bankruptcy is not a separate type of bankruptcy. Instead, it refers to cases where overwhelming medical bills are the main reason someone files. Many people need emergency care that they did not expect and could not plan for. Suddenly, they owe hundreds of thousands of dollars, and with no way to pay off the debt, they turn to bankruptcy.
Even those who plan ahead may realize that they cannot personally save enough money to fully cover medical bills. Instead, they may purchase a health insurance policy. The idea is that, if they ever need emergency medical care, their insurance provider will pay most of the cost. All they have to do is focus on making monthly premium payments. But is this really a good way to avoid bankruptcy?
Why it does not always work
Health insurance can certainly help. In many cases, an insurance policy is structured so that the policyholder must pay a deductible, but coverage applies after that threshold. For example, someone may be responsible for $5,000, so if they face $250,000 in medical bills after a car accident, they would not have to pay the entire amount.
However, this protection does not always work because it depends on the insurance provider’s network. Only in-network services are covered. In an emergency, people rarely stop to research which hospitals, doctors or providers are in-network. As a result, they may inadvertently receive out-of-network services that their insurance company then refuses to cover.
If something like this leaves you with substantial debt, it may be time to consider bankruptcy and carefully review all of your legal options.