The app helps destigmatize bankruptcy to face medical bills

An unplanned and complicated pregnancy put Carlazjion Constant of Smyrna, Tennessee, on the brink of financial collapse.

During high-risk pregnancy, your high-deductible health insurance paid next to nothing for critical additional obstetrician visits.

Just as those bills totaling $ 5,000 were due last year, a real estate company began to garnish his salary, for a lease that was broken during his college days ten years ago.

“I have a son. I can’t go through this,” said Constant, who works as a medical assistant in a pediatric practice. “You have to be able to do something. There has to be a way out.”

That’s when he came across Upsolve, a Brooklyn-based nonprofit that helps consumers benefit from bankruptcy laws.

Usually, it’s the medical bills that drive people into personal bankruptcy, although they are rarely listed as a family’s biggest debt. But they tend to be unexpected. According to the Census Bureau, nearly one in five households in the United States is afflicted with overdue medical bills, with higher concentrations in the South, where many states have not extended Medicaid to cover the working poor.

However, when Constant, 31, began to learn about Chapter 7 bankruptcy, he learned that lawyers could charge him at least $ 1,500.

“To get out of debt, I’m going to go into debt again,” he said.

Bankruptcy is the last resort, but resetting your financial history 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. Basically, it wipes out most of the debt, although student loans rarely are, while the other commonly used option, Chapter 13, usually sets up repayment plans.

In search of a cheaper solution online, Constant stumbled upon the Upsolve site, where users can download a free app that helps them begin the bankruptcy process without having to hire a lawyer. Users still have to pay a court filing fee of $ 335, although the app helps them apply for a waiver.

“These legal fees are like modern election taxes,” said co-founder and CEO Rohan Pavuluri. “If you cannot afford the fees, you cannot access this right, which is supposed to be guaranteed.”

Pavuluri calls the application “TurboTax Bankruptcy”. By answering questions in plain language through the app, users add their financial information to nearly two dozen forms required to file for bankruptcy in federal courts.

To offer the service for free, the association receives public funds and money from charitable foundations and big names in Silicon Valley, like former Google CEO Eric Schmidt.

The organization claims that since Upsolve was founded in 2018, the nonprofit has relieved more than $ 440 million in debt.

Pavuluri added that beyond simplifying the process, his mission is to destigmatize bankruptcy. He said it is viewed as a moral failure even though it is often used strategically in the corporate world to “start over”.

“We want to enable ordinary Americans to have the same tools that the richest people and the richest businesses in America have,” he said.

But there are concerns, and not just on the part of bankruptcy lawyers, to make bankruptcy so easy that its implications are overlooked. The advice lawyers provide has real value, said Cynthia Podis, a bankruptcy lawyer in Tennessee.

“The medical debt that you have right now might just be the tip of the iceberg,” he 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 for the next four or five years you’re going to have $ 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 pile up, that won’t be an option for a while.

Bankruptcy also devastates credit for years, making it difficult to get a loan to buy a car or rent a house.

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, is forcing those in debt to consider Chapter 7 relief.

“It might not be so good for people looking for a quick and easy fix,” he said. “If people don’t have to go through this cost-benefit analysis, then a lot more people could go bankrupt when they really shouldn’t.”

But the repercussions of financial debt are expected to increase after the covid-19 pandemic, with a disproportionate impact on African Americans. Upsolve data shows that nearly half of its African American users cite the pandemic as the main reason for the presentation. In comparison, less than 40% of white users cite covid as the main factor.

And medical debt is increasingly becoming 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 pandemic, the number had more than doubled.

Even financial advisers like Akery, who see Chapter 7 as “the extreme option,” say it can be a useful tool.

“This stigma prevents many people from starting the process, from which they could benefit and come away with a healthier financial future,” he said. “But on the other hand, there are people who go bankrupt every eight years.”

Six months after Constant tabled his Chapter 7, he said he had no regrets. Her only complaint after forgetting a lawyer was that she was the one to notify all of her creditors. But the app helped generate the documents automatically and sent you instructions.

“I feel like I have made a fresh start,” he said, adding that he wanted to “make it count”.

This story is part of 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 operational programs of the KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization that provides information on health issues to the nation.

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