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Dirty Little Secret – medical bills are the highest they have ever been and debtor buyers are paying pennies on the dollar to purchase the debts, but then sue the borrower for the full amount of the debt.

Article Yahoo!Finance, Adriana Belmone, June 21, 2021
“Medical debt is the no. 1 cause of bankruptcy in the United States, which is something that’s obviously a uniquely American problem,” Allison Sesso, executive director of RIP Medical Debt, said on Yahoo Finance Live. “So we’re out there trying to give people relief from this economic burden. We’ve got donors that are excited across the country to do more of this debt relief. That number — 278 million — we’re very proud of that, but we have a lot more debt relief ahead of us.”
Roughly 21 million Americans holding $46 billion of medical debt as of April 2021 face collections — meaning that a third-party debt collector is trying to obtain the money owed — according to Credit Karma data previously provided to Yahoo Finance.

How the Debt Collection Agency Business Works,
Investopedia, article by Amy Fontinelle, updated August 21, 2021.

Debt collectors often work for debt-collection agencies, though some operate independently. Some are also attorneys. Sometimes these agencies act as middlemen, collecting customers’ delinquent debts—debts that are at least 60 days past due—and remitting them to the original creditor. The creditor pays the collector a percentage, typically between 25% to 50% of the amount collected. Debt collection agencies collect delinquent debts of all types: credit cards, medical, automobile loans, personal loans, business, student loans, and even unpaid utility and cell phone bills.
Collection agencies tend to specialize in the types of debt they collect. For example, an agency might collect only delinquent debts of at least $200 less than two years old. A reputable agency will also limit its work to collecting debts within the statute of limitations, which varies by state. Being within the statute of limitations means that the debt is not too old, and the creditor can still pursue it legally.

Agencies That Buy Debt
When the original creditor determines that it is unlikely to collect, it will cut its losses by selling that debt to a debt buyer. Creditors package numerous accounts together with similar features and sell them as a group. Debt buyers can choose from packages that:

• Are relatively new, with no other third-party collection activity
• Very old accounts that other collectors have failed to collect on
• Accounts that fall somewhere in between

Debt buyers often purchase these packages through a bidding process, paying on average 4 cents for every $1 of debt face value.1 In other words, a debt buyer might pay $40 to purchase a delinquent account that has a balance owed of $1,000. The older the debt, the less it costs since it is less likely to be collectible.
The type of debt also influences the price. For instance, mortgage debt is worth more, while utility debt is worth significantly less.2 Debt buyers keep everything they collect. Because they took the risk of purchasing the debt from the original creditor (and paying in advance to the original creditor), this debt becomes their own, and any amounts collected are theirs.
Debt collectors get paid when they recover delinquent debt. The more they recover, the more they earn. Old debt that is past the statute of limitations or is otherwise deemed uncollectable is bought for pennies on the dollar, potentially making collectors big profits.
What Debt Collectors Do
Debt collectors use letters and phone calls to contact delinquent borrowers and convince them to repay what they owe. When debt collectors can’t reach the debtor with the contact information provided by the original creditor, they look further, using computer software and private investigators. They can also conduct searches for a debtor’s assets, such as bank and brokerage accounts, to determine their ability to repay. Collectors may report delinquent debts to credit bureaus to encourage consumers to pay since delinquent debts can seriously damage a consumer’s credit score. 

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.fusion-body .fusion-builder-column-1{width:100% !important;margin-top : 0px;margin-bottom : 0px;}.fusion-builder-column-1 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 1.92%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 1.92%;}@media only screen and (max-width:980px) {.fusion-body .fusion-builder-column-1{width:100% !important;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-1{width:100% !important;}.fusion-builder-column-1 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:980px) {.fusion-title.fusion-title-1{margin-top:15px!important; margin-right:0px!important;margin-bottom:0px!important;margin-left:0px!important;}}@media only screen and (max-width:640px) {.fusion-title.fusion-title-1{margin-top:10px!important; margin-right:0px!important;margin-bottom:10px!important; margin-left:0px!important;}}MUSINGS BY DIANE:No one wants medical debts, yet that may be the only way you can save your family member who is suffering with a disease or injury.  From my own personal experiences I know the scams that the medical system is suffering on us all.  If you need health care and have really good insurance (if that is an option) then you will not be faced with choosing between paying your mortgage or the hospital so they will operate to save your life.
Why do I know the truth?  Because I have had several knee surgeries (same knee) over a 4 year period.  The bill for the first surgery was about $125,000, my co-pay was about $1,000, and the insurance company was billed about $29,000.  That means the hospital/doctors over-charged by $95,000.  When I asked a hospital administrator about the extra $95,000, I was told that is the amount they would have billed anyone who did not have good insurance (they were talking about my clients who can barely afford to feed their families).  My husband went to the emergency room for fractured ribs.  We were there for 8 hours, he had a cat scan. The final bill was $12,689, our co-pay was $231, and our insurance was billed $300. 
This is wrong.  No one should have to delay necessary medical treatment because they cannot afford it.  No, I am not a socialist, but I am a pragmatist.  Greed should not be part of our medical system.

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The post Medical Debt Purchased by Debt Buyers for Pennies on the Dollar, but Sue For the Full Amount appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy Attorney.

Fast Company shares the stories of multiple people who have filed for bankruptcy. They share why it has been the best decision they’ve ever made.
“Clean Slate”
Whitney Reynolds filed for bankruptcy in 2014 because of overwhelming credit card debt. She had racked up $23,000 of credit card debt since graduating college. Her father suggested bankruptcy to her. He said, “‘There’s a lack of knowledge of what it means to somebody who’s making an average income and has run into some trouble and made some mistakes. For most people, it’s just a clean slate”‘. Since Whitney’s bankruptcy, she now has started budgeting properly and has an emergency credit card that she keeps frozen in her freezer – which literally can only be used for emergencies. Whitney’s credit score is now in the 700s.
“Last Resort”
Mopelola Gloria Fagbemi filed for bankruptcy because of her divorce. Once her marriage ended, she had to keep her finances afloat and take care of her three children. She knew bankruptcy was her last hope when she received a garnishment from her payroll. She was nervous about filing because she did not want to feel like a failure. Fagbemi says, “‘I’m part Nigerian, part American, and you’re not supposed to give up…People will tell you that you can push through and make the payment. They’ll say don’t file for bankruptcy, but they’re giving that advice based on what they believe. You need to think about what’s good for you and how you can sustain it—and then make your decision only based on that'”.
“Trying To Live Life Without Debt”
Robert Gale & his ex-wife had a large amount of consumer debt. They decided to file bankruptcy together before divorcing so that they could both split their debt. Gale had many worries about bankruptcy. He worried about losing his assets, his good credit score, etc. Gale says, “‘I thought we were going to lose the house, the cars—that they would take anything that’s got any value to it… That’s not exactly true for Chapter 7. If you can show that you’re able to pay specific debts, you can reaffirm debts that are larger and continue to pay those”‘. Though he didn’t originally want to file, Gale says it benefitted him in the end. Now remarried, Robert Gale’s only debt is his mortgage.
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The post “Filing For Bankruptcy Is The Best Decision I’ve Ever Made” appeared first on Allmand Law Firm, PLLC.

May a person contribute to 401(k) retirement plan during a Nebraska Chapter 13 case?
THE RULE PRIOR TO 2005:
Prior to the Bankruptcy Reform Act of 2005 the answer was fairly simple: No.  Contributions to a 401(k) retirement plan are voluntary, and prior to 2005 it was commonly known that contributions were not “necessary” to the support of a debtor.
The maximum required length of a plan was only three years, so to deny this deduction was not a terrible burden on debtors.  No matter how high their income was, debtors only had to be in Chapter 13 for three years.
THE RULE AFTER 2005:
But that all changed in 2005 and now higher-income debtors are required to spend up to five years in Chapter 13. Monthly payments are now, in theory, determined by a Means Test based on income received during the prior six months.
The entire intent of the new law was to make filing bankruptcy more difficult and to force debtors to pay back a greater portion of their debts
But the new 6-month income test also contained a new deduction: qualified retirement plan contributions.  Debtors might have to repay more of their debts, but at least they could contribute to a voluntary retirement plan, or so it appeared.
CONFUSION OVER RETIREMENT PLAN CONTRIBUTIONS:
The problem with applying the Bankruptcy Reform Act of 2005 is that nobody really understands what it says. The language is confusing and it contains incomplete “hanging sentences.”
As a result, bankruptcy courts have crafted different interpretations of whether a debtor may contribute to a voluntary 401k plan during a Chapter 13 case.  (See In re Penfound, 6th Cir 2021)
FOUR INTERPRETATIONS ABOUT RETIREMENT CONTRIBUTIONS:

1. Majority View–the Johnson View.  The majority of bankruptcy courts hold that a debtor may fund a 401k plan during Chapter 13 if the contributions are made in “good faith.”  Under this view bankruptcy courts look at all the relevant factors to see if the contributions are justified. Contributions must be reasonable in light of the debtor’s income, age, health, existing retirement balances, previous contribution percentages, the type of debt owed, and the amount of debt owed.  See Baxter v. Johnson (In re Johnson), 346 B.R. 256, 263 (Bankr. S.D. Ga. 2006).
2. Priggee Interpretation: Debtors are never permitted to contribute to voluntary retirement plans during chapter 13. In re Prigge, 441 B.R. 667, 677 & n.5 (Bankr. D. Mont. 2010)
3. Seafort-BAP Interpretation.  A debtor may continue to contribute to a 401k plan an amount they were contributing “at the time” the case was filed. In other words, you may not start contributing to a program after the case is filed.
4. CMI Interpretation.  A debtor may only claim a monthly deduction for an amount equal to the average amount contributed in the six months prior to filing.

NEBRASKA’S RETIREMENT CONTRIBUTION RULE:
There is no Nebraska or 8th Circuit case exactly on point, but it appears that Nebraska follows the Good Faith rule of Johnson.  A reasonable retirement contribution is allowed.
Counsel for the Chapter 13 Trustees often speak about a higher-income debtor’s level of retirement contributions.  Objections are raised on “good faith” grounds instead of technical arguments. However, when presented with a case involving a high-income debtor who offers to pay very little to unsecured creditors while making significant contributions to their own retirement plan, is is common for the trustee to object to the debtor’s budget.
OBSERVATIONS AND FINAL COMMENTS:
It is extremely common for debtors to liquidate or to stop contributions to a retirement plan before bankruptcy.  The vast majority of people I meet do not realize that retirement funds are shielded from creditor claims and they feel a strong moral duty to liquidate their savings to pay debts.
The other observation is that liquidating a retirement plan to pay debts rarely provides enough funds to pay back all the debt. At best only a portion of debt is paid and income taxes and penalties frequently consume nearly half of the funds withdrawn. Rarely does it make sense to use retirement savings to pay debts.
Those who do use retirement savings to pay debts suffer a tremendous blow. They forfeit decades of savings they can never restore.
When it becomes clear that filing bankruptcy is necessary, a debtor should cease to pay unsecured debts (credit cards & medical bills) and they should consider contributing to a retirement program prior to filing bankruptcy.  Bankruptcy courts may balk at contributions to 401k plans if those contributions were not being made prior to filing a case.
Most debtors wait too long to visit a bankruptcy attorney. By the time they do visit one they have wiped out savings that would have been fully protected in the bankruptcy case.
The lack of retirement savings is often a strong factor in deciding to file bankruptcy. Although a young person may learn a hard but valuable lesson in paying back debts incurred foolishly, those in their middle years are running out of time to save up for retirement.  Filing bankruptcy enables a person to protect the retirements they have saved so far and frees up future income to devote to that purpose. Bankruptcy has as much to do with planning for the future as it does in cleaning up the past.
 
Image courtesy Leigh Blackall & Flickr
 

While there is an age requirement to vote, consume alcohol, or drive a car, the Bankruptcy Code does not require an individual to be a certain age to file for bankruptcy. However, even though there is no legal requirement under federal law, state laws make filing for bankruptcy at a young age impractical. In California, […]
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