Bankruptcy filings have dropped from 1,536,799 in 2010 to 770,846 in 2016. How Much of the Decline Was the Result of the Affordable Care Care Act.?

In an article “How the Affordable Care Act Drove Down Personal Bankruptcy” dated May 2, 2017, Consumer Reports concludes that the decline of over 50% in consumer bankruptcy filings is attributable in substantial part to the enactment in 2010 of the Affordable Care Act.

The connection between medical costs and bankruptcy is well known by attorneys who have represented consumer debtors in Chapter 7 and Chapter 13 bankruptcy proceedings. This connection was fully explored and analyzed in 2005 by Elizabeth åWarren and David Himmelstein who found that half of all families filing for bankruptcy did so in the aftermath of a serious medical problem. However, it is important to emphasize that medical bills are part of a cluster of consequences for those who become ill,  and that even those who have medical insurance may be presented with the choice of either losing all that they have or filing a bankruptcy petition
.
It has been our experience that it is the loss of employment and the consequent inability to make payments for recurring essential  expenses is the most often cause for the filing of bankruptcy. Unpaid medical bills often result in dunning by debt collectors, followed by law suits by debt collection attorneys. But these debts can be managed, deferred and perhaps ultimately discharged in a consumer bankruptcy proceeding. What does present an imminent threat of the loss of ones home or vehicle is the loss or reduction of income.

This is not to say that many who file are not seeking the ‘fresh start’  benefits of a Chapter 7 consumer bankruptcy because of medical bills. But the the great majority of those who we have represented during the 2010 – 2016,  period covered by the Consumer Reports article filed for bankruptcy because they lost their jobs, and because the social safety net payments they received were insufficient to pay for their reasonable and necessary expenses. Many, even when they did become reemployed, earned substantially less than their prior incomes.

In fact, it could be argued that discharging consumer debt such as credit cards and unsecured personal loans in bankruptcy fostered the economic recovery by allowing consumer debtors to devote their incomes to consumption rather than debt service.  In addition, homeowners who had become delinquent on their mortgage payments and filed Chapter 13 petitions were more able to file feasible Chapter 13 plans by discharging consumer debt and by modifying some secured debt such as those on motor vehicles.