Lots of Virginia residents find themselves facing insurmountable debt. In many cases, that debt arises due to medical bills. Even insured patients can rack up thousands of dollars in medical bills if they need pricey specialized treatment, expensive prescription drugs or out-of-network specialists. In fact, medical bills are the leading contributor to personal bankruptcy filings in the U.S. There are a few steps that people can take to help avoid medical debt or find relief if they are already struggling.
Roughly 530,000 families throughout Virginia and the rest of the U.S. file for bankruptcy each year. The majority of those cases involve debt incurred due to medical reasons, according to a study published recently in the American Journal of Public Health. After reviewing bankruptcy data, a team of academics discovered that 66.5% of Chapter 7 and Chapter 13 petitions are filed by individuals who either have medical bills that they cannot pay or suffered a financial setback after an illness or injury left them unable to work.
Some people may think that only irresponsible people have to file for bankruptcy. But this is not true.
Virginia residents who are burdened by overwhelming debt may seek relief by filing for bankruptcy, but student loans are generally not dischargeable under a Chapter 7 or Chapter 13 petition. However, that may soon change as a bill was introduced on May 9 that would eliminate the part of the bankruptcy code that makes federal and private student loan debt nondischargeable. The bicameral bill has bipartisan support.
Some consumers in Virginia may be struggling more with credit card debt than they were in the past. Bloomberg Intelligence reports that in the first quarter of 2019, the charge-off rate increased to 3.82%. These are loans that credit card companies do not expect to ever collect. This is the highest charge-off rate seen since 2012.
The impact of a bankruptcy on a person's credit score depends on a number of different factors. There are cases where a Virginia resident who is struggling to pay debts actually sees an improvement in his or her credit score after filing for bankruptcy. Credit scores are calculated by looking at credit history and other data points. When the discharge process is completed, the lower amount of outstanding debt reported may result in an increased credit score. After that, the filers will need to take steps to begin the process of rebuilding credit.