An unplanned and complicated pregnancy pushed Carlazjion Constant of Smyrna, Tennessee, to the brink of financial abyss.
Her high-deductible health insurance paid next to nothing for the extra obstetrician visits needed during her high-risk pregnancy. Just when those bills totaling $5,000 came due last year, a real estate company began garnishing her paycheck for a broken lease while she was in college a decade ago.
“I have a child. Like, I can’t do this,” said Constant, who works as a medical assistant at a pediatric practice. ” Something has to be done. There must be a way out.
She came across Upsolve, a Brooklyn-based nonprofit that helps consumers use bankruptcy laws to their advantage.
Medical bills are often what push people into personal bankruptcy, even though they are rarely a family’s largest debt. But they tend to be unexpected. According to the U.S. Census Bureau, nearly one in five U.S. households are responsible for unpaid medical bills, with higher concentrations in the South, where many states have not expanded Medicaid to cover the working poor.
When Constant, 31, began investigating Chapter 7 bankruptcy, she learned that attorneys could charge her at least $1,500.
“To get out of debt, I get into debt again,” she said. “It was just wild for me.”
Bankruptcy is a last resort, but the financial reset button is also out of reach for many because the act of declaring bankruptcy is relatively expensive. Most people use one of two options under federal bankruptcy laws to get out of debt. Chapter 7 bankruptcy is for those who do not have a lot of assets to protect. It essentially cancels most debt – though rarely student loans – while the other commonly used option, Chapter 13, often puts repayment plans in place.
Constant’s web search for a cheaper solution led her to the Upsolve site, where users can download a free app that helps them file their cases without having to hire an attorney. Users still owe a $335 court filing fee, though the app helps them apply for a waiver.
“These legal fees are like modern poll taxes,” said co-founder and CEO Rohan Pavuluri. “If you can’t pay the fee, you can’t access that right, you’re supposed to be guaranteed.”
He calls the app the “TurboTax of bankruptcy.” By answering questions in plain English through the app, users add their financial data to nearly two dozen forms required to file for bankruptcy in federal courts.
To provide the service for free, the nonprofit receives government funding as well as money from charitable foundations and some big names in Silicon Valley, such as former Google CEO Eric Schmidt.
Since Upsolve was founded in 2018, according to the nonprofit, it has relieved more than $440 million in debt.
Beyond simplifying the process, Pavuluri said, it’s on a mission to de-stigmatize bankruptcy. He said it’s seen as a moral failing, even though bankruptcy is frequently used strategically in the business world to get a fresh start.
“We want to empower ordinary Americans to get the same tools as the richest people and the richest businesses in America,” he said.
But there are concerns – and not just from bankruptcy lawyers – about making bankruptcy so easy that the implications are overlooked. The advice given by attorneys has real value, said Tennessee bankruptcy attorney Cynthia Podis.
“The medical debt you have right now may just be the tip of the iceberg,” she said, giving the example of a client feeling the pressure of $20,000 in medical bills in suffering for a first round of chemotherapy. “But you know that over the next four or five years, you’ll have $150,000 worth of cancer treatment. You may not want to file a Chapter 7 right now.
Chapter 7 can only be used once every eight years. So if the debt keeps piling up, that won’t be an option for a while.
Bankruptcy also devastates credit for years, making it difficult to get a classic car loan or an apartment lease.
Erin Akery, who provides free financial counseling at United Way of Greater Nashville, said bankruptcy isn’t for everyone. And the cost, while sometimes prohibitive, forces those in debt to consider Chapter 7 trade-offs.
“It might not be so great for people looking for a quick and easy fix, and it’s not the right path for them,” she said. “If people don’t have to go through this cost-benefit analysis, then a lot more people might file for bankruptcy when they really shouldn’t.”
But the repercussions of financial debt are set to grow in the aftermath of the covid-19 pandemic, with a disproportionate impact on black Americans. Upsolve data shows nearly half of its African-American users cite the pandemic as the primary reason for filing. In comparison, less than 40% of white users cite covid as the main factor.
And medical debt increasingly represents a larger share of personal debt. Upsolve found that the average user had about $7,000 in medical debt before the pandemic; a year into the pandemic, the figure had more than doubled.
Even financial advisers like Akery, who see Chapter 7 as the “nuclear option,” say it can be a useful tool.
“That stigma prevents a lot of people from doing it who could really benefit from it and come out on the other side with a healthier financial future,” she said. “But on the other hand, there are people who file for bankruptcy every eight years.”
Six months after Constant’s Chapter 7 filing, she said she had no regrets. His only complaint after bypassing a lawyer was that it was his responsibility to notify all of his creditors. But the app helped automatically generate the documents and sent him instructions.
“I feel like I got a fresh start,” she said, adding that she wanted to “make it count.”
This story comes from a partnership that includes Nashville Public Radio and KHN.
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. Along with policy analysis and polls, KHN is one of the three main operating programs of the KFF (Kaiser Family Foundation). KFF is an endowed non-profit organization providing information on health issues to the nation.
©2022 Kaiser Health News. Visit khn.org. Distributed by Tribune Content Agency, LLC.