COVID-19 has had a terrible impact in the Black community, including illnesses, hospitalizations, job losses, loss of health insurance and many other devastating challenges. During the pandemic, a much higher percentage of the people hospitalized were Black (44%) and Hispanic or Latino (36%) than were white (16%).[1] Black households were hit hard because Black families tend to have less wealth and savings to help them get through a sudden financial crisis caused by a job loss or a high medical bill. In fact, even before prior to the pandemic, 35% of Black people said they or someone in their home had trouble paying a medical bill within the last 12 months.[3] When faced with large medical debts, many people look into filing for bankruptcy, which is a federal process to help you eliminate your debt or make a plan to repay the money you owe.
Bankruptcy
There are two ways for someone to file for bankruptcy – either Chapter 7 or Chapter 13. According to studies, Black people are more likely to file for bankruptcy under Chapter 13 — which is the more expensive type — than are white people and people of other races.[4]
There is no money due up front for a Chapter 13 bankruptcy filing. It can be paid over time, and cost $3000 to $4000.[4] Chapter 13 often is not the best choice unless you need to protect large assets like a retirement account, your home, or your car. Before the debt is excused or “discharged,” the Chapter 13 filer must pay up to 5 years of payments while supervised by the court – and this is where things usually go wrong. Less than half of people complete this process so most are still left with their debts.[2] John Rao, an attorney with the National Consumer Law Center said about Chapter 13, “African Americans who have fewer assets and lower incomes are filing Chapter 13s at a higher rate than whites, and that doesn’t make sense.”[2]
On the other hand, filing under Chapter 7 takes less time (about four months), costs less, and is easier. A Chapter 7 bankruptcy filing costs about $1200 total.[4] The major downside is that Chapter 7 filers must give up all their large assets and pay all attorney’s fees up front.[2] Because it is cheaper overall and more likely to be successful, make sure to seriously consider this option.
Financial relief from medical bills
For those people saddled with debt due to illnesses or hospitalizations, there also may be another way to get help. If you owe money to a hospital, check to see if you can work out a payment plan or find out if the hospital has a program to reduce your charges if you cannot pay. Also, find out if the hospital is a nonprofit because the Affordable Care Act requires nonprofit hospitals to work with you to settle your debts.[5]
[1]“Disparities in COVID-19-Associated Hospitalizations; Racial and Ethnic Health Disparities,” Center for Disease Control and Prevention, Updated 2021 Oct. 8, See https://www.cdc.gov/coronavirus/2019-ncov/community/health-equity/racial-ethnic-disparities/disparities-hospitalization.html
[2]“Bankruptcy Racial Disparities Poised to Add to Pandemic Pain,” Pappas, Leslie A., Social Justice & Diversity, 2020 Aug. 31: viewed 9/28/21 pp 1-7. https://news.bloomberglaw.com/bankruptcy-law/bankruptcys-racial-disparities-poised-to-add-to-pandemics-pain
[3]“The Burden of Medical Debt: Results from the Kaiser Family Foundation/New York Times Medical Bills Survey,” Hamel L., et al 2016 Jan.
[4]“Black People More Likely to File for More Expensive Bankruptcy Option, Experts Say,” Aisha Al-Muslim WSJ, 11/12/2020 https://www.wsj.com/articles/black-people-more-likely-to-file-for-more-expensive-bankruptcy-option-experts-say-11605227346?st=cpwkr5gz867yiay&reflink=article_copyURL_share
[5]“The Burden of Medical Debt: Results from the Kaiser Family Foundation/New York Times Medical Bills Survey,” Hamel L., et al 2016 Jan., Citing New Requirements for 501(c)(3) Hospitals Under the Affordable Care Act, Internal Revenue Service, https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/New-Requirements-for-501(c)(3)-Hospitals-Under-the-Affordable-Care-Act