The lawsuit against the debt collector makes several startling allegations, but observers who follow the industry might note that debt collectors have a long history of preying on patients.

In fact, many people have chosen to file for Chapter 7 bankruptcy in an effort to escape the abusive tactics sometimes practiced by medical debt collectors.

Accretive Health Targeted by State Lawsuit

The Chicago Sun-Times reports that the Chicago-based medical debt collection company is in serious trouble:

• The lawsuit. Minnesota Attorney General Lori Swanson filed the lawsuit earlier this year against Accretive Health, which has contracts with two Minnesota hospitals.
• The allegations. In the lawsuit, Swanson alleges that Accretive Health misused private patient information and routinely pushed patients to pay for medical services before they even received treatment. Sources say the debt collectors went so far as to demand funds from patients who were still in a hospital bed. Some of these patients chose to forego treatment rather than pay the aggressive collectors.
• Disturbing example. The company has allegedly gained a reputation as creating “high-pressure, boiler room-style atmospheres.” This strong claim is supported by the story of one Illinois woman who apparently prepaid for a surgery but paid four times too much, thanks to the pressuring tactics of the debt collector.
• Clash of interests. The company’s allegedly unsavory tactics seem particularly out of place when applied in nonprofit hospitals. According to Swanson, “[w]hat we’ve uncovered is a culture clash between the mission of a nonprofit hospital, which is to care for the sick and the infirm, and Accretive’s goal of making as much money as possible for its private shareholders.”

In response to these allegations, a spokesperson for Accretive Health told sources that the company has a “great track record of helping hospitals enhance their quality of care,” but she declined to comment further on the matter.

Medical debt is one of the leading causes of bankruptcy in the United States, and firms like Accretive Health that reportedly use high-pressure tactics to collect payments for medical treatments help convince many people to seek bankruptcy protection.

By filing for bankruptcy, people with medical debt immediately receive the benefits of the automatic stay, which keeps aggressive creditors at bay while filers try to regain their financial footing.

That number is up 13 percent from the previous two years.

A recent survey done by the Commonwealth Fund showed that one out of five adults is currently paying off debt from medical bills.

One reason experts are attributing  the rise in medical debt is the high unemployment rate.

Insurance benefits often curtail much of the burden that medical bills put on Americans. With the unemployment rate somewhere in the 8-9 percent range, Americans are prone to bear the brunt of their medical expenses on their own.

However, even Americans who are covered by health insurances plans can still accrue a large amount medical debt. According to Commonwealth Fund Biennial Health Insurance Survey, around two-thirds of people with medical debt had health insurance coverage when the medical emergency occurred.

With companies shedding costs by reducing coverage and shifting the burden of cost to the employee, many Americans are left with expensive medical bills.

As a result, many employees opt for a higher deductable to lower the monthly charge for coverage. Although this offers short term relief, in the long run it often costs employees more money. According to the Commonwealth Fund survey, over half of the people with a deductible higher than $1,000 reported trouble paying their medical bills.

Contributing to a rise in people seeking financial help for their medical bill is the rate at which medical bills are referred to collection agencies. Often, medical bills carry a high negative balance; a balance in which the hospitals and clinics can’t afford to pursue on their own.

Mistakes Are Made

One common mistake Americans make to combat high medical bills is putting the expenses on to credit cards. Some people even open up new credit cards for the sole purpose of paying for doctor visits and other medical expenses.

Another actions Americans take to pay for medical expenses is a home equity loan. The loan payments that are produced from this type of loan can potentially rise higher than the original medical bill you had set out to combat. Experts warn to avoid taking out this type of loan due to the heightened risks involved, including the possibility of losing your home.

Mistakes are also common on the hospital’s end as well. Experts suggest being diligent in examining your medical bill before you leave the hospital. Many tests and services are often added errantly on to bills.

Experts suggest contacting the hospital or clinic directly to solve medical debt issues. Experts also warn that reaching for a credit card should be a last resort, causing financial headaches further down the line.

Should you deposit that money into your checking account and spend it at will or should you use all, or part of the refund to pay down existing credit card debt?

The answer: it’s completely up to you.

Profound, I know.

However, US News & World Report recently detailed five trustworthy steps to pay down your credit cards efficiently and get the debt monkey off your back (and even one that’ll help when the others won’t).

Budgeting Is Key

Experts say that the first step to implementing a responsible budget is to spend less. Put that money in to a savings account where it can later be used to sufficiently and conveniently pay down your credit card debt.

Another, more thought provoking, way to budget for credit card debt is to just plain earn more. This requires tactfulness and may not be possible for the percentage of Americans working long hours at multiple jobs. Either way, experts say that you have to budget for extra dollars in order to know how much extra you can pay each month to get your credit card debt paid off.

Balance Transfer Offers Help

Many card issuers are offering balance transfer offers of 0% interest for 12 months or sometimes even longer. Balance transfers can help because the money you pay towards your credit card debt goes directly to paying off the principal balance.
Experts warn that these offers often come with fees, somewhere in the range of 3 to 5 percent. Although there is a fee, often the fee is much lower than the interest that you would accrue through regular payments before a balance offer to a 0% interest card.

Use Your Debit Card Instead

Experts say that if you have any hope in eliminating credit card debt (or at least making a significant dent) you must stop accruing credit card debt. Many times it’ll be tempting to reach for that credit card when at the register but experts say cutting up your credit cards will eliminate that temptation. You will never pay down the debt if you keep racking it up.

Use Your Negotiating Skills To Obtain New Terms

Loyalty is important in the credit card business. Credit card companies want you as a customer for as long as possible so if you’ve been a loyal customer, making payments on time for an extended period, you may be able to renegotiate your interest rate (depending on the mood of the customer service representative; be polite, it goes a long way).

Consider Bankruptcy

Experts say that if you have a significant amount of debt and you’ve tried everything under the sun to get out of it then bankruptcy can be a viable option in the long run. It’s important to note that you have options and talking with a bankruptcy specialist will help you on the road to debt recovery.

Between January and March of 2012 credit card borrowing fell by $5 billion.

The Federal Reserve report excludes mortgages, home equity loans, and other loans associated with real estate.

According to the Associated Press, consumers carried $799 billion in credit card debt in February 2012 – 15% less than the start of the economic recession in December 2007.

Also mentioned was that consumer spending rose in February by the most in seven months. Experts point to consumers spending more cash in an effort to continue to pay down their debt.

Despite the falling number in consumer credit card debt, experts warn that keeping an eye on your credit score is important and connecting with a local bankruptcy attorney in your area if you are having issues or want an alternative to paying down your debt.

What Affect Does This It Have On Your Credit Score?

Aspowerful as a credit score can be, it’s important to know all the factors that comprise your score. We all know that the higher the credit score, the less risk you are to potential borrowers but what you may not know is that potential employers can pull your score in order to determine if you are a risky hire.

As it becomes more and more important to have an appealing credit score, U.S. News & World Report recently outlined 6 ways in which you can personally improve your score.

The 6 Steps To A Better Credit Score

1) Check your credit score for errors:

Errors on your report can cost you. Some ways in which errors can happen are people with the same name as yourself affecting your score and the ever-haunting identity theft. Thieves can affect your score by running up the spending that appears on your report. Experts warn that you should check your credit score (there are many free sites available to do so) diligently for items in which you may not be responsible for.

2) Limit the number of credit cards you take out:

To keep your credit score in top shape limit the number of credit cards you apply for in a short period of time. Every application for credit cards that you apply for will show up on your credit report. Experts warn that applying for credit that you don’t need is something credit reporting agencies look for in determining your overall score.

3) The lower the debt, the better off you are:

Some consumers believe that debt must be accrued in order to have a good credit score. Experts say that isn’t the case. In any regard, the lower your debt is, the better off your chances are at achieving a higher credit score.

4) Avoid waiting to pay your bills all at once:

Experts insist on “micropayments” on bills throughout the month in order to lower your debt quicker. This can help your debt utilization ratio, which is calculated by dividing the debt on your credit cards by the overall credit limit. Experts estimate that number should be around 33%.

5) Higher credit limits, the better:

To improve your debt utilization ratio you can ask your credit issuers for a credit line increase. This gives you a higher ceiling on your credit cards and may help you get your ratio closer to that magic number of 33%.

6) Active cards are your friend:

Lastly, having active cards are important to your overall credit score. Experts suggest using the cards that you have, even if it’s on small things like trips to the coffee shop or gas station, in order for those purchases to be reported. The goal here is to show the credit reporting agencies that you can use credit responsibly. Closing cards that you don’t use is not suggested because that will bring your debt ratio down, thus possibly lowering your credit score. Credit history is important to those reporting agencies so keeping an account active is in your best interest.

The difference has been noted before by other researchers, but the trend shows little sign of stopping, and some believe that the disparity even grew worse during the recent recession.

The study did not mention whether women tend to file for Chapter 7 bankruptcy at a higher rate than men, but this would come as little surprise because Chapter 7 is one of the most powerful methods of credit card debt relief.

Women Pay More for Credit Cards Than Their Male Counterparts

According to a recent study administered by the FINRA Foundation, women routinely pay more for credit cards than men, and women also have more difficulty in paying off their credit debts:

• Credit card balances. The study discovered that women are five percentage points more likely than men to carry a credit card balance. And the researchers accounted for differences in income level and education when making these conclusions.
• Paying Late fees. In addition, women are six percent more likely than men to be charged a late fee after failing to make a payment on time.
• Making minimum payments. Despite researcher’s discovery than men and women have the same levels of financial literacy, women were still four percent more likely to only make the minimum payment on their credit cards, which, if done over an extended period of time, can cause high levels of credit card debt and eventually lead to Chapter 7 bankruptcy.

Reasons for the Credit Card Disparity

Because the researchers accounted for differences in education and income, experts are somewhat flummoxed by the results of the study.

The results tend to support the stereotype that women shop more than men, but this isn’t necessarily true, nor does it fully explain the disparity in factors like women’s increased likelihood of being charged late fees.

In fact, the differences may reveal subtle, but profound, cultural biases in the ways that credit card companies deal with male and female customers.

Of course, women should not be overly discouraged. The president of the FINRA Foundation, Gerri Walsh said that “having a high level of financial appears to pay off,” suggesting that women who play closer attention to their finances can beat the trend.

In Walsh’s words, “[b]ecoming more financially literate is a great step that any woman can take to keep more of her hard-earned money in her pocket.”

Hospice care for elderly patients can cost hundreds of thousands of dollars, and many families are understandably nervous about racking up huge medical debts for hospice care at the end of an elderly person’s life.

Fortunately, though, Medicare can help cover some of the costs of hospice care, according to a recent report from Patch.com.

Hospice Care may be Covered by Medicare for Eligible Patients

Hospice care can provide extremely valuable care for very ill patients at the end of their lives, but it can cost a fortune. Eligibility requirements for Medicare-funded hospice services include:

• Medicare Part A eligibility. First, potential patients must be eligible for Medicare Part A, which is basically hospital insurance. In addition, patients must be terminally ill and their doctors must provide proof that they have less than six months to live, if the illness behaves in a predictable manner.
• Approved hospice program. Potential patients must also sign a statement that formalizes their commitment to hospice care, rather than other treatment for their terminal illness, and they must receive care from a hospice program that has been approved by Medicare.
• Benefits of hospice care. If a patient qualifies, he or she will receive the benefits of hospice care, which usually includes a doctor and nurse who are on call 24 hours a day, seven days of week. In addition, a patient’s doctor will work closely with a family to design a medical care program that meets the family’s specific needs.

Hospice Benefits Provided by Medicare

If a patient qualifies for hospice care, Medicare will help pay for a consultation with a hospice medical director, as well as doctor and nurse services, medical equipment, and other basic health care services.

There is no deductible when Medicare pays for hospice care, and patients will pay no more than five dollars for each prescription drug, according to sources.

In addition, patients will be able to receive inpatient medical care while in the hospice, and they will only have to cover five percent of the amount that is approved by Medicare.

So, for families who are worried about having to file for bankruptcy to cover the costs of medical treatment, Medicare might prove to be a tremendous financial aid for end-of-life care.

In addition, a recent survey discovered that college students are shockingly unaware of the dangers of taking out too much credit debt, and also display a disturbing lack of knowledge about how credit cards actually work.

And if the amount of credit card debt among college students continues to rise, states may soon see a dramatic increase in the number of young people filing for Chapter 7 bankruptcy.

College Students Have Alarming Ignorance About Credit Card Use

According to a recent survey published by five colleges in conjunction with Financial Literacy Month, financial literacy on college campuses seems to be dangerously lacking:

• Widespread use. First, the use of credit cards is ubiquitous among college campuses. Sources indicate that 70 percent of college students in the United States possess some type of credit card.
• Widespread ignorance. Now, the unsettling news. According to the survey, of these millions of students who hold credit cards, only one out of every six student knows the interest rate for late payments on his or her credit card. In addition, 75 percent of students do not know how large their late payment charges are, and a staggering 70 percent do not know how much they will be charged if they go over their balance limit.
• Consequences. Thanks in large part to the lack of awareness about interest rates and balance limits, more than 90 percent of college students who use credit cards are carrying some amount of credit card debt each month, according to the survey cited in Fox Business.

The numbers are frightening, and the authors of the survey did not mince words when describing the nature of the results.

According to the authors, the students surveyed “lacked even basic financial knowledge of a common credit tool” that many of them use every day for basic purchases.

Placing their tongues firmly in the cheeks, the study’s authors also wryly noted that “[t]here is no way to describe these results as a success in education of financial literacy.”

To add further mystery to the study, a large majority of the students who took the survey were business majors, who are, at least in theory, the most financially savvy students on campus.

One wonders just how bad the numbers may have been if the survey had focused on students outside the business field.

According to CNN, in 2009 congress passed laws that limited fees credit card companies can put on customers known as the Credit Card Act.

As a part of those laws Congress had stated that no more than a 25% fee of the credit limit can be placed on any account for first year credit card fees.

First Premier Bank, a credit card issuer, had sued after the bill was signed into law.

In 2011, a federal court judge in South Dakota acknowledged the bank’s claims that the new laws don’t start until the customer has already opened the credit card account. This can allow credit card issuers to charge exuberant fees to open the actual account without being in danger of breaching any cap that has been set, According to CNN.

Consumer agencies such as U.S. Public Interest Research Group, Consumer Actions, and the National Council of La Raza have condemned the ruling. According to Reuters, the groups claim the Consumer Financial Protection Bureau is backing down from protecting consumers.

The consumer agencies argue that the fees are aimed at low-income borrowers who are only given a credit limit of a few hundred dollars.

Credit Across The Pond

In the United Kingdom, a judge recently ruled that Harrods, a retail department store, could not collect a debt on a store credit card citing that the store’s process in issuing the card was not properly handled.

According to BBC News, Harrods had issued the card holder a store card and then later upgraded it to an actual credit card without the consent of the card holder.

This measure mirrors the tactics employed by credit card companies in the United States. The 2009 Credit Card Act was partially implemented in order to curb credit card companies who push the limits of the law in order to collect fees on their customers and circumvent policies in order to make a profit.

GE Capital, the company that ran the Harrods store card business at that time, argued in court that the company did not need to issue new terms of agreement when issuing the new credit card.

In 2009, GE Capital’s card business was sold to the Spanish bank Santander.

The judge’s ruling may open the opportunity up for other card users in default to argue that their store credit cards were issued improperly. However, the ruling does not set an official precedent in the United Kingdom courts.

Global Uncertainty

Citigroup, one of the United State’s largest banks and credit issuer, has seen its quarterly profits slump 2% amidst the uncertainty surrounding the global economy, according BBC News.

In an economy where even the mighty have fallen, it is certain that institutions will do whatever it takes to turn a profit. This may include issuing fees to existing customers or implementing new fees to new customers.

The recent ruling against the 2009 Credit Card Act has caused consumer watchdog agencies to warn of the possible lengths these issuing companies might possible go to in order to make themselves profitable once again.

In light of recent economic events, however, Medicare’s future may be in limbo, according to a report from the San Francisco Chronicle.

A rapidly aging population, and a slowly growing workforce, could combine to place a serious burden on younger generations’ ability to secure Medicare benefits. This could lead to a marked increase in medical debt for younger Americans.

The Uncertain Future of Medicare

According to the San Francisco Chronicle, Medicare faces a very uncertain future:

• The program. In brief, Medicare offers medical insurance to certain people who have a lot of medical expenses, or are unable to afford basic coverage. Medicare does not pay for all of a person’s medical care, but it does offer significant aid, often paying for more than 80 percent of a person’s medical bills. Medicare offers health coverage for millions of Americans who otherwise could not afford treatment.
• The problem. As the Baby Boom generation reaches retirement age, a rapid influx of retirees are entering the Medicare program. Since Medicare is funded by working taxpayers, younger generations will soon have to start footing the bill for retirees’ health insurance. This has always been the case, but the rising number of retirees in relation to younger workers threatens to sap Medicare’s funding sources.
• The possibilities. If the Medicare program was eventually closed, the San Francisco Chronicle predicts that elderly and low-income people could suffer tremendously. These at-risk groups would have to find health insurance with major private insurers, but their applications could be turned down due to pre-existing conditions.
• Collateral damage. In addition to reduced insurance for the poor and elderly, the death of Medicare could lead to skyrocketing medical costs for other people seeking medical aid, as more and more medical service for uninsured people goes unpaid.

The death of Medicare is not imminent, but it is a realistic possibility. And Congress’s inability to address the matter in a productive, bipartisan manner only serves to kick the problem down the road.

In a world without Medicare, or a suitable replacement, medical bills Chapter 7 bankruptcy would likely skyrocket, and more elderly and low-income Americans would likely turn to Chapter 7 bankruptcy to help eliminate their medical debt.

But while Chapter 7 is a powerful tool to combat high medical bills, it is certainly not a replacement for a fully functioning health insurance system.

One California resident recently asked a columnist for the Orange County Register how to obtain a credit card without a credit history, and the answer offers several tips on getting a card without a credit rating.

Consumers should also know that getting a credit card and making regular monthly payments is an excellent way to develop a positive credit history, which may make securing future loans much easier.

Tips for Getting a Credit Card Without a Credit Score

According to the Orange County Register, if you are too young to have a credit history, there are still ways to obtain a credit card:

• Find a secured card. Most experts say opening a secured credit card is the best way to begin developing a credit history. These cards are often offered by small banks or credit cards, and they protect both the lender and the borrower. In brief, when you open a secured credit card, you will make a deposit (typically ranging from $250 to $500) into your credit account, and then the bank will open up a credit account for you.
• Using a secured credit card. Most banks set up the initial credit limit at the amount of money you placed in the account as a deposit. Once you have this card, you can use it just as you would a regular credit card, but you should only make small purchases that you know you can pay off in full each month. And experts suggest that you do not allow your balance to exceed 30 percent of your credit limit.
• Credit benefits. When you are using your secured credit card, each payment you make will be reported on your credit history. Thus, over time, you will begin to develop a strong credit score, and after a few months, you may be eligible for an unsecured card.

Chapter 7 Bankruptcy and Credit Card Debt

Owning a credit card can sometimes open consumers to a world of debt. Even responsible, hard-working consumers can face mounting interest rates if they miss a few payments.

Fortunately, these consumers are not powerless in the face of debt. Chapter 7 bankruptcy offers a potentially beneficial tool for eliminating some or all of your unsecured debts, including medical bills and credit card debt.

A typical Chapter 7 case takes only a matter of months and, while it may have a temporary impact on a filer’s credit score, often allows filers to hit the “reset” button on their financial lives.

With credit card debt shouldering the load of blame and championing news articles, the student debt just kept rising.

The recovery of the American economy is at risk after this recent milestone, but who’s to blame?

The Cycle of Debt

Students are an essential variable in the fragile ecosystem that is the American economy.

Without students, the future of industry is at risk of being vulnerable to outside powers.

Without loans, students can’t afford the ever-growing cost of tuition (even at state universities which tend to be a more cost effective option).

An unstable job market adds fuel to the fire as well.

Students who’ve graduated are hard-pressed to find jobs despite the slight upswing of job availability. Without jobs, students aren’t able to pay off student loans, and with the increasing interest rates, the debts continue to build.

The increased enrollments from year to year illuminates the notion that most young Americans, and subsequently their parents, are confident in the fact that the economy will turn around by the time their four years are up.

The problem is that tuition is increasing and government programs no longer can bare the weight of demand. More and more students are using private loans to facilitate their financial needs while in school.

Not only are privatized loans being sought, but credit cards are being utilized to shoulder the cost of attending college.

According to a report done by the Federal Reserve Bank of New York, nearly 3 out of 10 student loans have past due balances of 30 days or more.

What This Means Going Forward

The student debt issue has become a full-fledged crisis.

For decades credit card debt was fingered as a catalyst to the rising debt in America and it was an easy scapegoat to blame. Society’s greed was exposed and shamed as a reason for numerous economic downturns.

The difference with the student debt crisis Americans are now facing is that this problem was not born out of greed or materialistic consumerism; it is a product of a society that wants to better their lives through higher education.

We are staring in the eyes of a potential paralysis of the US economy because our country’s youth wants to contribute to society and be a force in the economic industry.

That drive, the American work ethic and will to better one’s life through higher education is what made our country what it is today and we can no longer ignore the financial burden that educational journey has put on our society.

When collection agencies assume the responsibility of collecting a medical debt, they apparently sometimes allow evidence of a collection action to linger on a consumer’s credit report for years after the debt is paid.

And since 30 million Americans were contacted by collection agencies in 2010 for unpaid medical bills, the negative effects of medical bills on credit ratings may be much more widespread than previously thought.

Medical Bills and Credit Ratings

A recent article from Fox News offered a frightening story about a couple who were plagued by a previously paid medical bill:

• The story. Sources indicate that Mike and Laura Park, a couple residing Dallas, Texas, were looking into buying a new home when a lender flagged their low credit scores. Apparently, a few years earlier, the couple had a $200 medical bill that was sent to a collection agency. Even though they paid it in full, the bill still lowered their credit scores by about 100 points, which cost them roughly $2,500 in higher interest payments on their mortgage.
• Lingering bills. According to Fox News, the record of a collection action, even for a relatively small medical bill, can stay on a credit report for up to seven years. Surprisingly, an estimated 3.4 million Americans have medical debt that has been paid off still showing up on their credit reports, according to the Access Project.
• Widespread problem. And the number of Americans whose credit reports are impacted by previously paid medical bills may soon grow. Sources indicate that 30 million consumers in the United States were being pursued by collection agencies for unpaid medical bills last year. This number is a significant jump from the 22 million Americans who were being shaken down by collection agencies for medical debts in 2005.

Eliminate Medical Bills in Chapter 7 Bankruptcy

In order to avoid situations like the one experienced by the Parks, consumers should check their credit reports every year in order to spot potentially unwelcome debts that have been eliminated.

In addition, if individuals are concerned that they won’t be able to pay off their medical bills, they may consider filing for Chapter 7 bankruptcy, which may help filers eliminate some or all of their unsecured debts.

This theory, however, couldn’t be farther from the truth. Debts accrued immediately before filing for bankruptcy are often not discharged in bankruptcy, and judges are often very reluctant to help filers who attempt to cheat the system.

The information given below offers more guidance on adding new debts while you are filing for bankruptcy.

Bankruptcy and Credit Card Debt

According to the financial advocates at the New York publication, Sheepshead Bites, racking up huge amounts of credit card debt immediately before filing bankruptcy is not a wise idea:

• Legal hurdles. Under U.S. bankruptcy laws, credit card charges worth more than $500 that are made within 90 days of a bankruptcy filing are presumed non-dischargeable in bankruptcy. So, filers cannot go on wild shopping sprees right before filing bankruptcy. Courts simply won’t allow it.
• Potential loopholes. In response to this law, some filers may simply wait for 91 days after a credit shopping spree and then file for bankruptcy. However, creditors can look back at this purchase and determine whether a filer had enough cash to actually make a luxury purchase. If you have no assets, and spend thousands of dollars on a luxury buy, the creditors might successfully argue to the court that you have engaged in bankruptcy fraud.
• Necessary expenses. Of course, not every large credit card payment will raise the suspicion of creditors and the bankruptcy court. If, for example, you plan to file for bankruptcy soon, but you have to purchase expensive medication for a seriously ill child, the bankruptcy court will likely not have any problem with the spending. Each case is evaluated on an individual basis, and most bankruptcy courts use a healthy amount of a common sense.

So, in summary, adding a ton of credit card debt right before filing bankruptcy could prove to be a minor nuisance, or it could derail your bankruptcy entirely, but either way, it’s not a good idea.

Nevertheless, if you are struggling under the weight of too much credit card debt that has been building over a long time, Chapter 7 bankruptcy may provide a powerful form of debt relief.

Contact a Chapter 7 bankruptcy lawyer today to learn more about the link between credit card debt relief and Chapter 7 bankruptcy.

A recent article in Forbes discusses this woman’s search for medical bill relief, and the irony of her medical debt problems juxtaposed with her opposition to President Obama’s controversial health care law.

The story highlights the complexity of medical costs in America, and the dangers of accruing too much medical debt.

Affordable Care Act Plaintiff Files for Bankruptcy

In a recent story, Forbes highlights the tale of 56-year-old Mary Brown, one of the plaintiffs in a current lawsuit that is challenging the Affordable Care Act:

• Mary Brown’s fight. In recent years, Mary Brown, a resident of Florida, has become an outspoken critic of the Affordable Care Act, and joined a lawsuit against the law because she felt she had the right to not purchase health insurance.
• Bankruptcy filing. Last year, like more than a million other Americans, Mary Brown and her husband filed for bankruptcy to help them relieve their debt problems. Interestingly, among the couple’s debts were $4,500 worth of medical bills, which, sources say, could have been mostly paid if Mary had chosen to buy health insurance.
• The dilemma. Critics of Brown’s medical bill bankruptcy claim that her saga shows that the individual mandate, in which the government will eventually require individuals to purchase health insurance or face a fine, would have saved both Brown and taxpayers money in this situation. Brown, however, rejects this claim, and says that the Affordable Care Act is unconstitutional because it would force her to purchase something she doesn’t want to buy.

Perhaps not surprisingly, supporters of the Affordable Care Act have observed that Brown’s bankruptcy filing may eliminate her medical debt, which would, in the long run, lead to higher medical costs as hospitals try to recoup losses from people who avoid medical debt by filing for bankruptcy.

Thus, the argument goes, Brown’s decision not to purchase health insurance raised costs for everyone else.

In response, Brown and her supporters may argue that, regardless of the long-term financial effect of her decision, her ability to make a free choice about whether she should buy health insurance should be protected.

Regardless of which side will ultimately prevail in this debate, Brown’s bankruptcy does offer proof that filing for bankruptcy may help you eliminate medical debt, whatever your political leanings.

It seems that, even for those who earn enough to afford to buy a home (including one woman the article profiled who earns $125,000 per year), banks are largely unwilling to initiate mortgage loans when student debt is too high.

This may be because…

• Student loan debt cannot be discharged in bankruptcy. Even in Chapter 7 bankruptcy, which offers filers a discharge of most of their unsecured debts, student loans are notoriously difficult to eliminate.
• Mortgage lenders are more cautious than they were during the housing bubble. Because of the mayhem caused when the bubble burst, most mortgage lenders are much more selective now than they were a few years ago about initiating mortgage loans. In many ways, this is unsurprising: even those who have high-paying jobs right now may not have those jobs in a few years, when mortgage payments (and student loan payments) will still be due every month.
• While the bankruptcy court has remained strict about repaying student loans, many homeowners have simply abandoned their homes (and mortgages) in recent years when payments became too much. Because of the abuses that led up to the crash in the housing markets, bankruptcy judges have been much more understanding with these so-called “strategic defaults” than they might have been in the past. The stigma of walking away from a home, in other words, has been greatly diminished since the crash of the housing market.

Are Student Loans the Next Bubble?

Some analysts have argued that student loan debt will be the next bubble to burst, once again wreaking havoc on the American economy. Their argument is hard to ignore: since 2001, student loan debt in the U.S. has increased by 600 percent, compared to a less-than-200% increase for mortgage debt.

High levels of student debt, combined with a weakened job market (especially for young, fresh-out-of-college employees) mean that those massive student loans have become harder than ever to repay.

If the trend of withholding mortgage loans from those with high student debt—even when those borrowers earn enough money to otherwise qualify for a mortgage—the U.S. housing market could take much longer to recover than originally thought.

After all, a whole generation of first-time homebuyers might be shut out of the market as their student loans prevent them from getting the mortgage loans they need to make purchase real estate.