The Treatment of Medical Indebtedness in Personal Bankruptcy

Abstract

This paper examines the treatment of medical indebtedness in the personal bankruptcy process. We demonstrate statistically that bankruptcy courts systematically discharge medical claims at a higher rate than competing non-medical claims. We then develop a model of bankruptcy which suggests three hypotheses that we test empirically. First, as medical claims increase relative to the debtor's net wealth, the presiding judge becomes more sympathetic and approves a higher discharge rate. Second, if the court is sympathetic, it will induce a debtor to acquire more non-medical debts. Third, nonmedical debts increase with the debtor's initial wealth. (11, Kl)