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One in Five

posted by Elizabeth Warren

One in five families spent more than 10% of their annual income on health care in 2003, says a new report in the Journal of the American Medical Association.  That's 48.8 million people younger than 65 (people over 65 were excluded from the study) living in families that spent at least 10% of their take home pay on medical care, an increase from 1996 to 2003 of 11.7 million people.  If that news isn't bad enough, consider the subset of people living in families paying more than 20% of their income on medical care--18.7 million people, or 7.3% of the under-65 population.  About two-thirds of these people had health insurance.

Earlier the Kaiser Family Foundation announced that nearly one-quarter of Americans are having trouble paying medical bills, and that 15% of families have been contacted by a collection agency about medical bills they cannot pay.

Debb Thorne, Melissa Jacoby and I, along with our Harvard Medical School coauthors David Himmelstein and Steffie Woolhandler, have written in a medical journal and a law review  about the impact of medical problems on bankruptcy filing.  If our 2001 findings were applicable in 2004, then about 800,000 families filed for bankruptcy following a serious medical problem, and about three-quarters of those families had health insurance when they first filed. 

The JAMA report is entirely consistent with our findings, but it raises a haunting question:  with the 2005 bankruptcy amendments pushing filings down to around 600,000 total this year, what has happened to families with unpayable medical bills? 

Health care costs and insurance costs have continued to rise, and families still face illnesses and accidents.  If families cannot--or believe they cannot--get relief from bankruptcy when a medical problem turns them upside down financially, then where are they going?  Are they losing their homes?  Racking up more debt on their credit cards?  Turning to payday lenders?  Getting sued?  Hiding out from debt collectors?

The only thing that seems certain is that nothing has gotten easier for middle class families facing a medical crisis. 


This is a nice blog, thanks! It may sound silly that you have to watch your credit report, but you would be amazed at the number of people who actually have errors on their credit report and they are completely unaware of it.
In Making Your Credit Report Work For You, there are a couple of things that you can do.Hope you'll find it and your many readers very useful.
Have a super day!

It has been my experience that most medical debt collectors and many other creditors do not let a bankruptcy discharge stop them from attempting collect these accounts anyway. The vast majority of medical debt accounts are not corrected on debtors credit reports after the discharge. They continue to report a collection account despite receiving notice of the account. Or they misreport the discharge in such a manner that the account will show up as a a current profit and loss charge-off and a discharge which is even worse in some respects than if they had not reported the discharge at all. Other medical debt collectors quickly sell the accounts to other debt collectors when they get wind of a bankruptcy filing which makes it harder to get the account reported correctly. Our society uses credit reports to determine whether or not someone owes a debt. Potential lenders assume that the credit report is correct. Insurers and even utilities raise the rates of those folks with bad credit. The discharge may stop lawsuits, garnishments, and sometimes even telephone harassment, but the value of a discharge has been greatly eroded by the practices of patient, smart debt collectors and creditors.

These folks wait a few years until the debtor tries to refinance a home, sell a home, or buy a new one and then the incorrectly reported account interferes with the transaction. Most of the time the discharged debts or even discharged judgments get paid even if the debtor disputes the debt or even if they give the discharge order to their mortgage broker or lender. Sometimes the debtor elects to go with subprime lender that won't require that the debt be collected, but they will charge the debtor a higher interest rate. On a thirty year note, a debtor may pay an extra $75K or more than they should have paid over the life of the loan. That may be more than the debt that was discharged. Where is the fresh start in this scenario?

I think we need to make sure that if these middle class families facing a medical crisis actual file bankruptcy, they get the benefit of the fresh start they were promised. Even those debtors who know enough to use the FCRA dispute process, after their discharge, find that it either does not work or if the account does get corrected, the problem resurfaces a few months to a year later when the creditor or collector re-reports the account. Unfortunately, these middle class families eventually find out that even if they make it through the bankruptcy process itself, their problems are far from over.

Mr. Manchee - You say that your experience indicates that "most" debt collectors violate the post-discharge injunction with respect to credit reporting. I don't doubt that SOME debt collectors do so - every industry has its bad actors - but I cannot accept your generalization without comment. I've been in this business for over 20 years and do not see the wholesale disregard of reporting rules that you suggest. Errors occur, to be sure. But you suggest that every bill collector uses only the most devious, and indeed illegal, means by which to collect a debt. Such an assertion would be bunk. I would suggest to you that, given your practice area, you are prone to see only the cases of actual abuse.

Mr. Engel,

T I am referring to post-discharge credit reports. I have reviewed thousands of debtor credit reports and nearly every one has multiple debt collectors that are failing to report the discharge. I would say half of these are from the large, public debt collectors. The rest are mixed bag. Perhaps most of the honest debt collectors simply delete the account from the credit report, I don't know. That may happen. What we see on the reports, though, are the folks who don't comply with the law.

Also, the debt buyers and debt collectors who are buying up charged-off credit cards do not seem to communicate with the original creditors regarding bankruptcy filings. Neither party seems to be sending the account holders notice of the sale of the accounts so they can add the debt buyers/collectors to their schedules. I am sure this is on purpose most of the time. How hard would it be for the big creditors to send a copy of the notice to the company that bought the debt? They all subscribe to Banko and flag the accounts as the cases are filed. I imagine the programs could send a notice to the debt buyer without much trouble.

So debt collectors pop up all the time after discharge. These folks start harassing the debtors about discharged debt and don't ofter stop after receiving a cease and desist letter that gives them notice of the bankruptcy.
Unfortunately, this happens to the vast majority of debtors who filed bankruptcy after their credit card accounts were charged-off.

I never deal with the honest debt collectors since they are not the ones causing my clients problems. I just see dozens and dozens of dishonest ones.

Mr. Manchee - Makes sense. But, please, do NOT lump bill collectors with debt buyers - especially credit card debt buyers. They are two different industries, although they may appear to be the same.

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