Personal Bankruptcy Filings May Decrease Due to the Affordable Care Act

If the recent trend in the state of Massachusetts is any indication, the number of people who file for bankruptcy is likely to decrease on a national level. That is because the number of people who reside in Massachusetts and who file for bankruptcy has fallen greatly. The significant decrease could be attributed to the state’s law that requires everyone to have health insurance. The law became effective in 2005.

The U.S. Supreme Court recently held that the Affordable Care Act (ACA) permits subsidies for individuals and families who meet certain income requirements and who buy health insurance via federal exchanges. According to a Northeastern University Law professor named Daniel Austin, as a result of a rise in health insurance throughout the country, there may be a decrease in bankruptcy filings on a national level.

Several studies have revealed that the principal reason people file for bankruptcy is medical debt. However, that is not the case in Massachusetts, the sole state in which medical debt is not the main reason for personal bankruptcy. Prof. Austin found that the primary reason for personal bankruptcy in Massachusetts is loss of income.

According to the results of Prof. Austin’s study, residents of Massachusetts who file for bankruptcy have significantly less debt than any other state in the nation. In Massachusetts, a person or couple who filed for bankruptcy in 2013 usually had medical debt in the amount of $3,041. In stark contrast, people elsewhere had medical debt that was in an average amount of $8,594. Based on the decrease in bankruptcy filings of Massachusetts residents due to medical debt, there will likely be a similar drop in such filings across the nation as people have less medical debt due to the availability of affordable health insurance.

Prof. Austin believes that it wouldn’t be a leap to suggest that the reform of health insurance in Massachusetts is the reason that the number of residents in the state who seek bankruptcy filings is decreasing at a faster rate than that of the other states in the country. For the last couple of years, the number of people who seek bankruptcy filings has been declining, in part, because of an improvement in the economy.

Included in Prof. Austin’s study was an assessment of 5400 bankruptcy cases that were filed between 2005 and 2013. Under bankruptcy law, those who seek bankruptcy filings are required to reveal their entire debt, including the amount and the name of the persons or entities to which they owe a debt. The study was also based on approximately 380 answers to survey questions addressed to attorneys and bankrupt persons.