This published on Wednesday, February 2, 2005 by Reuters:

Half of Bankruptcy Due to Medical Bills—U.S. Study

By Maggie Fox, Health and Science Correspondent

WASHINGTON (Reuters) - Half of all U.S. bankruptcies are caused by soaring medical bills and most people sent into debt by illness are middle-class workers with health insurance, researchers said on Wednesday.

The study, published in the journal Health Affairs, estimated that medical bankruptcies affect about 2 million Americans every year, if both debtors and their dependents, including about 700,000 children, are counted.

“Our study is frightening. Unless you’re Bill Gates you’re just one serious illness away from bankruptcy,” said Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School who led the study.

“Most of the medically bankrupt were average Americans who happened to get sick. Health insurance offered little protection.”

The researchers got the permission of bankruptcy judges in California, Illinois, Pennsylvania, Tennessee and Texas to survey 931 people who filed for bankruptcy.

“About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy,” they wrote.

“Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness.”

The average bankrupt person surveyed had spent $13,460 on co-payments, deductibles and uncovered services if they had private insurance. People with no insurance spent an average of $10,893 for such out-of-pocket expenses.

“Even middle-class insured families often fall prey to financial catastrophe when sick,” the researchers wrote.

Bankruptcy specialists said the numbers seemed sound.

“From 1982 to 1989, I reviewed every bankruptcy petition filed in South Carolina, and during that period I came to the conclusion that there were two major causes of bankruptcy: medical bills and divorce,” said George Cauthen, a lawyer at Columbia-based law firm Nelson Mullins Riley & Scarborough LLP.

“Each accounted, roughly, for about a third of all individual filings in South Carolina.”

He said fewer than 1 percent of all bankruptcy filings were due to credit card debt. “That truly is a myth,” Cauthen said in a telephone interview.

Cauthen said he was not surprised to hear that so many of the bankrupt people in the study were middle-class.

“Usually people who have something to protect file bankruptcy,” he said. “The truly indigent—people that we see on the street—there is no relief that we can give them.”

Dr. Steffie Woolhandler, a Harvard associate professor and physician who advocates for universal health coverage, said the study supported demands for health reform.

“Covering the uninsured isn’t enough. We must also upgrade and guarantee continuous coverage for those who have insurance,” Woolhandler said in a statement.

She said many employers and politicians were pressing for what she called “stripped-down plans so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy.”

© Reuters 2005

House Passes Bankruptcy Bill; Overhaul Now Awaits President’s Signature
By STEPHEN LABATON / Published: April 15, 2005

WASHINGTON, April 14 - The House overwhelmingly approved a major overhaul of the nation’s bankruptcy laws on Thursday, completing Congressional action on the measure and sending it to President Bush.

The 302-to-126 vote adopted the first significant revision of the bankruptcy laws in 27 years and is the culmination of years of intensive lobbying by the nation’s largest banks, credit card companies and retailers, who have complained about what they say is a rising tide of abusive bankruptcy filings.

It is a victory for Mr. Bush, who supported the measure, and a setback for civil rights, labor and consumer organizations.

read more here

Bankruptcy bill bad for debtors
Boomer Bucks by Barbara Whelehan • Bankrate.com

Editor’s note: On the afternoon of April 14, 2005, the House passed the bankruptcy bill, clearing the way for President Bush to sign it into law.

The bankruptcy bill that the Senate passed earlier this month is a good news/bad news bill. It’s good news for big business, and mostly bad news for financially troubled consumers.

read more here

provisions in new law (in a nutshell):

ONE: a “means test”: consumers with income greater than the median level in their state (us median income level is $65,093) with a disposable income of $100 that can be used to repay $6,000 in 5 years *MUST* file chapter 13.  these are the same guidelines used by the IRS for tax evaders.  severely limits allowable expenses: $200/month for food, $800/month for housing and utilities.

TWO: money contributed to 529 college savings plans more than 2 years prior to filing are exempt.  money contributed to 529 college savings plan more than 1 year but less than 2 years is subject to a $5,000 limit on assets that the credit card companies can access.

THREE: 40 months of home ownership, even in states where homesteads were exempt, is required to exempt your home from assets available to creditors.

FOUR: up to $1 million in retirement savings can be shielded

FIVE:  unlimited money can be protected by placing it in state-sponsored asset protection funds.  (available in 5 states)

hmm, i wonder who’d benefit from all of those provisions.  how many of the individuals filing for bankruptcy have access to millions of dollars they can stash in funds?  and if they did...wouldn’t they then have enough money to pay back their debts?  just a thought.

their stance on the law (in a nutshell):

proponents of the new bill say:
people should be responsible and not charge more than they can afford to pay back.

opponents of the new bill say:
yes, people should be responsible with their debt; however sometimes life throws you unforeseen curves, such as high medical costs, lost jobs, divorces, etc. a harvard study found that over half of all bankrupcties were due to medical bills.  (see previous entry here) the new law may remove a safety net for folks who find themselves in this situation and could mire them in debt for life.

proponents of the new bill say:
the number of bankruptcies has dramatically risen in the past 10 years.  over 1 million people filed for chapter 7 bankruptcy relief last year.  half of that in 1994. some 70% of filers currently go with chapter 7 because it essentially wipes the slate clean, even though it does remain on their credit reports for 10 years.

opponents of the new bill say:
the most basic change in the past 10 years has been in the marketing to consumers: credit is being offered to more high-risk consumers, so higher default numbers are no surprise.  (think of how many credit offers you get in the mail...then think of how much those companies are spending to send these mass mailiings out.  with discover card, i get an offer by mail at least 3 to 4 times a week.)

proponents of the new bill say:
the new law will lower costs for consumers, because currently they are forced to pick up the difference on unpaid debts

opponents of the new bill say:
the stance that the new law will lower costs for consumers is false.  the average interest rate has declined over the past 10 years.  between 92 and 95, the spread between credit card interest rates and risk-free six-month treasury bills declined and has remained constant through 2001.  at the same time, profitability of credit card issuing banks has remained at near-record levels.  banks are not losing money.

Boosting your post-bankruptcy credit score
Posted: Oct. 10, 2006

The Bankruptcy Adviser by Justin Harelik • Bankrate.com

Dear Bankruptcy Adviser,
Why should I care about a bankruptcy on my credit report? Six years after being discharged, my credit score is 736. Does it still make a difference?
-- Sharon

Dear Sharon,
This is a great question. You may have “ghost credit,” and I’ll get more into that in a minute, but first things first: Congratulations! I have no doubt your improved credit score is the result of hard work. There is more you can do to improve your credit and I hope this article will give you, and everyone else in similar situations, a few ideas.

You should always care about every mark on your credit report. When a lender is deciding whether to give you access to their money, they rarely make a mistake by saying, “No.” “No” is their default answer and anything that leads them down the path to saying “no” is worthy of concern.

However, once you’ve done everything you can do, let it go. Because bankruptcy information stays on your credit report for 10 years, you have four years to go before the bankruptcy mark can be removed.

During those 10 years, there are negative consequences to having this mark on your report.

Consequences of bankruptcy:

• Some banks may refuse your credit card application or demand a higher rate.
• Some credit underwriters may discriminate against you if you apply for a home mortgage or car loan.
• Many unsecured credit card companies may not increase your credit limit as rapidly as you might like.
• Prospective employers may discriminate against your employment application.

Now, let’s talk about “ghost credit.” You may have it and there’s not much you can do about it, but you should at least know what it is. Four years from now, Sharon, your credit report will be squeaky clean, but it won’t go back before your bankruptcy. In other words, your credit history will only be 10 years old. Negative but accurate information comes off credit reports, but positive accurate information stays on forever, so people who have not declared bankruptcy have credit reports that look different than yours.

Underwriters looking at your loan application may take into account your “ghost credit.” That is, the underwriters will ask themselves, “what happened to Sharon before these 10 years?” Of course, it’s none of their business, and in the scheme of things, it’s not nearly as important as what has happened recently (which is reflected in your credit score). However, underwriters are careful people and they would prefer a positive credit history of long standing over a positive credit history of comparatively short standings and ghost credit. This is not something to worry about, because you cannot go back in time, but it is worth understanding.

Here are some ideas for how you can accelerate the restoration of your credit and squeeze some extra advantages out of the system:

If you haven’t already done so, make sure you have accounts with major banks. Many times after bankruptcy, people must get credit cards and loans from less well know financial institutions. Once you’ve held some of these cards for a while, if possible, switch over to accounts with big banks. The reason is when they say “yes,” their affirmations carry more weight. 

If you have a car loan, consider refinancing it. If you bought a car with a four- to six-year payment plan and your credit score has improved at all, you could qualify for interest rate and payment decreases.

If you haven’t asked for an increase of your credit limit in a while, do so. The formula for determining your credit score depends on how much credit you have available. For example, you may be eligible to have your credit limit extended from $3,000 to $8,000. That extra $5,000 increases your credit availability, and that could help your credit score.

If you know how, take a look at your report at least once a year or work with someone who can. Improving and maintaining your credit is a lifelong endeavor and every detail counts.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser, go to the “Ask the Experts” page and select “bankruptcy” as the topic.

I am trying to buy a house and I have a bankruptcy and an item in collections. Is it possible to clear that up?

Negative items that are outdated (7 years for negative items, 10 years for bankruptcies), inaccurate, unable to be verified, or that don’t belong to you MUST BE REMOVED, according to the Fair Credit Reporting Act. Unless your bankruptcy, or collection item, is outdated, or somehow inaccurate, the items cannot be removed.

What should a bankruptcy look like on a credit report? I have some entries, which show as “included in a bankruptcy”, and others, which were also included in the bankruptcy, that show notations for 30/60/90 days late and account balances.

Okay, I’ve never filed a bankruptcy (knock on wood), so I’ve never actually seen one listed on a credit report. I did a bit of hunting and found a site called “411 Bankruptcy”, which states: “After the discharge, you are entitled underfederal law to have the balance of each discharged debt reported as zero. The history of delinquencies can be reported, but the balance must be zero. If it is not so reported, dispute the debt.”

https://www.411bankruptcy.com/creditrepair.asp

Note: I know very little about bankruptcies, but I believe the key here may be the discharge of the bankruptcy.