Six months ago, I faced reality: my debt had become unmanageable. Having a chronic illness and disability is expensive – some of my meds are covered, but some aren’t and don't get me started on how expensive it is to repair a power wheelchair. After years of juggling my finances, all the balls were crashing to the floor. Paying bills made me queasy, I was paying one credit card with another and running out of money in the middle of the month, which meant using credit to buy food. There was nothing for it. I made the call to a credit counselor to explore my options.
There is a lot of judgment about declaring bankruptcy, both from yourself and others. It feels shameful, as if you failed in the basic task of being an adult. As if you're irresponsible and a spendthrift and a leech upon society. That’s the myth. The facts are startling and sobering and very much not about being irresponsible. Over 60 percent of bankruptcies in the US are medical. That is, they are filed by people who have lost income due to illness or mortgage their home to pay medical bills. Medical bankruptcy has nothing to do with not managing your money, it is caused by an external force out of your control. You have to ask yourself this question: is it logical to feel shame about something which is not your fault?
That was the biggest gift the credit counselor gave me: he removed the shame of it. In so doing, he helped me face the situation head-on and weigh my options carefully and with open eyes.
Reducing your expenses and getting control over your budget is your first step to financial health. This includes keeping track of where your money goes, cutting out unnecessary expenses, shopping sales whenever you can and contacting your credit card company to ask for a reduction in your interest rate. However, for people who carry a lot of debt due to high medical costs, getting control over expenses may not solve the problem. If your financial pinch is becoming more of a vise, squeezing you so hard you can’t breathe, you have several options.
Consolidation loan. If your debt is distributed over several different sources such as credit cards and credit lines, but is reasonable enough that you can pay it off over a number of years, you may want to consider a consolidation loan. This covers your existing debts, consolidating them into one loan repayment. Talk to your bank about whether this is an option for you.
Debt settlement/debt negotiation. If your debt is such that you will not be able to repay it using a consolidation loan, debt settlement can be a good alternative. This is a process whereby a debt settlement company works with you to negotiate a repayment of part of your debt. Although you can negotiate with your creditors yourself, getting professional help can protect you. Make sure you find an accredited and reputable debt settlement company. You can learn more about debt settlement and the companies that provide assistance on the consumer section of the United States Organizations for Bankruptcy Alternatives website.
Bankruptcy. Bankruptcy may be an option if your income is limited or uncertain, as it would make it difficult or impossible to repay a consolidation loan or debt settlement. Declaring bankruptcy is complicated process - for instance, there are four different types of bankruptcy (Chapters 7, 11, 12 and 13), which you declare depends on your circumstances. The US Department of Justice Trustee Program provides more information. Their Bankruptcy Information Sheet, available in several languages, is a good place to start your research. Before filing for bankruptcy, you must complete a credit counseling class and the Trustee Program also provides a list of approved nonprofit credit counseling agencies by state. This type of agency should be able to refer you to a reputable bankruptcy attorney to guide you through the process.
Two months after I sent in my proposal, my debt settlement was accepted by my creditors. I felt - and still feel - an overwhelming sense of relief that my financial nightmare is over. These days, I am no longer queasy when paying bills and I can afford groceries all four weeks of the month. The settlement is enabling me to build my financial foundation back up again slowly and I have faith that once it’s finished five years from now, I will be in a much better place.
No matter how good you are at managing your budget, being diagnosed with a chronic illness can throw everything out of whack. You may be able to reduce your medical costs by using a financial assistance program for medication and thinking creatively to stretch your prescription medication budget. Even so, the cost of having RA can be overwhelming. If your debt is taking over your life, exploring your options for repayment or bankruptcy can help you start over again with a fresh start.
Himmelstein, Daniel U, Thorne, Deborah, Warren, Elizabeth and Woolhandler, Steffie, “Medical Bankruptcy in the United States, 2007: Results of a National Study.” The American Journal of Medicine, 122(8), pp.741-746, 2009.
US Department of Justice, Bankruptcy Information Sheet, 2010.
This month, your HealthCentral team is writing about the cost of being sick and getting healthy from a variety of perspectives.
Lene is the author of the award-winning blog The Seated View.