Could an Illness Wipe You Out? Bankuptcy Might Need to be Planned For

http://www.freedigitalphotos.net/images/view_photog.php?photogid=721 Christine Wilton has an insightful post "Are We Just One Injury or Illness Away From Bankruptcy?"  In it, she highlights the issue of what happens if you get ill, become disabled, and the insurance just isn't there.  If there bills are enough to completely wipe you out, what should you do?

This is particularly relevant to the retired.  This past week I got 2 separate inquiries about someone who either (1) did not sign up for Medicare at 65, or (2) didn't get a Medigap policy, all based on affordability issues.  They got sick, and now want coverage, but the coverage isn't there.  Both situations were not life threatening, but could wipe out the finances they had to provide for the rest of their lives.

First, what not to do.  Christine cautions against using credit cards or drawing down a home equity line to pay your medical bills.

If you're faced with medical debt, do not use your credit cards or home equity or any other financing to pay that debt. You're only adding interest to that debt and avoiding the most likely inevitable bankruptcy. What's worse is that if you use home equity, you could lose your home later if you fall behind on your mortgage."

Some things to do:

  1. Read your medical coverage and understand its limitations.  
  2. Use pre-tax dollars when possible to pay for care (at a 25% tax rate, this mean for every $100 you are spending the government is essentially kicking in $25 because you don't have to use the $25 for taxes).
  3. Try to settle your debt - the head in the sand approach won't make it go away.
  4. Speak to a qualified bankruptcy attorney to determine if that might be your best option, as well as all the drawbacks of going that route.

 Image courtesy of: http://www.freedigitalphotos.net/images/view_photog.php?photogid=721

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