Some observers believe that medical debt is the biggest cause of bankruptcy filing in the country and in Arkansas. According to one national agency, there are some 43 million persons with unpaid medical debt on their credit reports. The probable reason that many with burdensome medical debt file bankruptcy is that it is fairly easy to discharge unsecured debt in a liquidation proceeding under Chapter 7.
When life hits a brick wall where tens of thousands of dollars of medical debt are making life highly burdensome, the bankruptcy answer is quick, precise and effective. People with large medical bills cannot usually be criticized for indiscreet spending -- they had no choice in the matter. That makes it easier for some people to make a decision to file a bankruptcy, eliminate the debt and move on with a fresh start.
Those who are burdened with medical debt often have considerable credit card debt also. This may be due to using the cards to pay some of the medical bills. Credit card debt is usually also easily dischargeable in a Chapter 7 bankruptcy, because this kind of debt is also unsecured and has no collateral attached to it.
Chapter 7 may make some people hesitant because it's called the liquidation chapter. Assets of the debtor are sold to pay toward the debt listed in the bankruptcy papers. However, with respect to average consumers, they usually lose no personal assets or belongings in a Chapter 7 due to the ample exemptions provided by state and/or federal law.
Arkansas provides a system where one can choose the federal exemptions or the state exemptions. The federal exemptions are generally ample enough so that an individual or married couple are able to keep their important possessions, including cars, retirement plans, furnishings and the like. However, the situation is complicated enough that it is not recommended that a person tries to figure out how to maximize exemptions without professional bankruptcy counsel's guidance through the maze.
Source: theconversation.com, "Why medical debt -- and bankruptcy -- are growing problems", Daniel A Austin, Jan. 28, 2015