This article studies the financial decision-making behavior of U.S. families that have difficulties paying for their medical bills and investigate what alternatives they have to avoid filing for formal bankruptcy and what influence their motivation to do so. Using household financial and demographic information from the Health Tracking Household Survey in 2007 and 2010, this article finds that families with younger age members, minority ethnic background, more doctor visits, and without insurance made more diverse and severe choices to finance the payments before resorting to personal bankruptcy. Interestingly, households with better education seek more diverse but easier financing methods, suggesting that financial literacy may play a dual role in undertaking financial planning—strategic default and bankruptcy avoiding.
While this article is directed towards financial counselors, who are often inexplicably averse and ignorant of bankruptcy as an option, much of its advice is useful for consumer bankruptcy attorneys in both understanding their clients, including reticent potential clients, and in providing the most complete assistance possible.
Included in this is that consumer bankruptcy attorneys, as well as Chapter 13 trustees and bankruptcy judges, "need to take into the account that health insurance coverage, ethnic background, and medical history play a critical role, influencing family financial decisions."
Additionally, the findings that "families with younger age members, minority ethnic background, more doctor visits, and without insurance made more diverse and severe choices in financing their mounting medical bills" and avoided filing bankruptcy when compared with their higher income and more educated counterparts, may point to additional answers as to the discrepancies noted in filing rates and bankruptcy chapter selection by differing demographic cohorts.
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