By Blake Farmer, Nashville Public Radio, KHN
An unplanned and complicated pregnancy pushed Carlazjion Constant of Smyrna, Tennessee, to the brink of financial collapse.
Her high-deductible health insurance paid next to nothing for the extra obstetrician visits needed during her high-risk pregnancy. Just as those bills totaling $ 5,000 fell due last year, a real estate company began to seize its paycheck for a lease broken at the university ten years ago.
“I have a child. Like, I can’t do that, ”said Constant, who works as a medical assistant in a pediatric office. ” Something has to be done. There must be a way out. “
She stumbled upon Upsolve, a Brooklyn-based nonprofit that helps consumers use bankruptcy laws to their advantage.
Medical bills are often what pushes people into personal bankruptcy, although they are rarely considered the biggest debt in a family. But they tend to be unexpected. According to the US Census Bureau, nearly one in five American households have to pay past due medical bills, with higher concentrations in the South, where many states have not extended Medicaid to cover the working poor.
When Constant, 31, began investigating the Chapter 7 bankruptcy, she learned attorneys could charge her at least $ 1,500.
“To get out of debt, I go 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 the two options offered by federal bankruptcy laws to get out of debt. Chapter 7 bankruptcy is for those who don’t have a lot of assets to protect. It essentially forgives most debt – although rarely student loans – while the other commonly used option, Chapter 13, often sets up repayment plans.
Constant’s web search for a cheaper solution brought her to the Upsolve site, where users can download a free app that helps them file without having to hire a lawyer. Users still owe a court filing fee of $ 335, although the app helps them apply for their waiver.
“These legal fees are like modern day voting taxes,” said co-founder and CEO Rohan Pavuluri. “If you can’t afford the fees, you can’t access this right that you’re supposed to be guaranteed. “
He calls the app the “Bankruptcy TurboTax”. By answering questions in plain English through the app, users add their financial details to nearly two dozen forms required to file for bankruptcy in federal courts.
To offer the service for free, the association receives public funds 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, the nonprofit has said it has relieved more than $ 440 million in debt.
Beyond simplifying the process, Pavuluri said, his mission is to destigmatize bankruptcy. He said this was seen as a moral failure, even though bankruptcy is frequently used strategically in the corporate world to get a fresh start.
“We want to give ordinary Americans the same tools as the richest people and richest businesses in America,” he said.
But there are concerns – and not just on the part of bankruptcy lawyers – that bankruptcy is so easy that the implications are overlooked. Advice from lawyers has real value, said Tennessee bankruptcy lawyer Cynthia Podis.
“The medical debts 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. suffering for a first series of chemotherapy. “But you know that over the next four or five years you’re going to get $ 150,000 worth of cancer treatment. You may not want to file a Chapter 7 just yet.
Chapter 7 can only be used once every eight years. So if the debt continues to accumulate, that will not be an option for a while.
Bankruptcy also devastates credit for years, making it difficult to get a conventional car loan or apartment lease.
Erin Akery, who provides free financial advice with United Way of Greater Nashville, said bankruptcy isn’t for everyone. And the cost, while sometimes prohibitive, forces those in debt to consider the compromises of Chapter 7.
“It might not be great for people who are looking for a quick and easy fix, and it is not the right way for them,” she said. “If people don’t have to go through this cost-benefit analysis, then a lot more people could file for bankruptcy when they really shouldn’t.
But the repercussions of financial debt are expected to increase in the aftermath of the covid-19 pandemic, with a disproportionate impact on black Americans. Upsolve data shows that nearly half of its African American users cite the pandemic as the main reason for filing. By comparison, less than 40% of white users see covid as the main factor.
And medical debt is increasingly a larger share of personal debt. Upsolve discovered that the average user had approximately $ 7,000 in medical debt before the pandemic; a year after the start of 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.
“This 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 was tabled, she said she had no regrets. His only complaint after bypassing a lawyer was that he was responsible for informing all of his creditors. But the app helped generate the documents automatically and sent him instructions.
“I feel like I’ve made a fresh start,” she said, adding that she wanted to “make it count”.
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 operational programs of the KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization that provides information on health issues to the nation.