The Root of Bankruptcy in Montana

By Jolene Bach, Rural Dynamics Inc.Last week, Montana Legal Services highlighted that the vast majority of consumers who file for bankruptcy do so as a direct result of medical debt and that three-quarters of those filers had private health insurance. Either these consumers were underinsured; were sick for an extended time period and lost their jobs and insurance; or took out second mortgages on their homes to pay co-payments and were unable to make ends meet.In Montana, RDI Consumer Credit Counseling Service (RDI) provides certified pre-bankruptcy financial counseling, bankruptcy education, and pre-discharge financial counseling. Last year the agency counseled 2,005 Montanans for Bankruptcy.Numerous factors go into bankruptcy filing for RDI clients. The majority have medical debt that is compounded by other bills and a life changing event like job loss, divorce, or the death of a spouse. The top factors of bankruptcy that RDI counselors saw last year were

  • Medical debt from underinsured or uninsured
  • Job loss and extended unemployment
  • Divorce

To echo the post from MLSA, there is a misnomer that bankruptcy is caused due to excessive spending. We see some of those, but the majority are not frivolous spenders. They have had an uncontrollable life changing event that has pushed them beyond their financial capabilities.Even with long-term savings and a solid budget, medical debt can overwhelm anyone and marr credit reports. Many Montana families are living paycheck to paycheck. A five hundred dollar co-pay can be a burden that does not get paid within the allocated 30 days and is turned over to collections.Nationally, attention is focused on medical collection procedures and a new bill was introduced to the US House and Senate on June 2. According to the PR Newswire, The Medical Debt Responsibility Act, HR 2086, requires that medical bills of $2,500 or less, which now have a zero balance from having been paid or settled, be removed from credit reports. Presently, medical debt that has been completely paid off or settled can still remain reflected on consumers’ credit scores for up to seven years. As a result, millions of hard working and credit worthy Americans are being denied credit and are paying higher interest rates on mortgages. This bill would be a great step forward. If this goes through, we advise that consumers check their credit report and request that these items be removed from their credit reports immediately.Regardless of the circumstances, RDI aggressively tries to prevent bankruptcy because of the ramification on consumer’s credit. Our agency works across Montana to ensure that when bankruptcy is the only option consumer’s get the counseling and education necessary to move towards financial security. We see the true need as addressing the way in which medical debt is handled by institutions. Reform is needed if Montanans are truly to attain financial security.