The app that tries to break the bankruptcy barrier for people with medical debt

An unintended and complicated pregnancy pushed Carlazjion Constant of Smyrna, Tennessee, to the financial brink.

Her high-deductible health insurance barely covered the additional obstetrician-gynecological visits needed during her high-risk pregnancy. Just like those $5,000 bills due last year, a real estate company started paying her for a broken tenancy during college a decade ago.

“I have a baby. Like, I can’t do that,” said Constant, who works as a medical assistant at a pediatric clinic. “Something must be done. There must be a way out.”

She came across a Brooklyn-based nonprofit Upsolve, which helps consumers use bankruptcy laws to their advantage.

Medical bills are often what push people in personal bankruptcy, though rarely considered the largest family debt. But they tend to be unexpected. Nearly a fifth of households in the United States are stuck with overdue medical bills, according to the U.S. Census Bureau, with higher concentration in the South, where there are many states Medicaid not yet expanded to protect the working poor.

However, when Constant, 31, began considering Chapter 7 bankruptcy, she learned that attorneys could charge her as little as $1,500.

“To get out of debt, I’m going back into debt,” she said. “It’s just wild for me.”

Bankruptcy is a last resort, but the financial recovery button is also out of reach for many because declaring bankruptcy is relatively expensive. Most people use one of these two options under federal bankruptcy law to get out of debt. Chapter 7 bankruptcy is for people who don’t have a lot of assets to protect. It will essentially write off most debt – although rarely student loans – while another commonly used option, Chapter 13, often sets up repayment plans.

Constant’s search for a cheaper solution on the web led her to the Upsolve website, where users can download a free app that helps them file without hiring an attorney. Users still owe $335 in court filing fees, even though the app helps them apply for an exemption.

“Those legal fees are like modern-day poll taxes,” said co-founder and CEO Rohan Pavuluri. “If you can’t pay the fee, you can’t access this right you have 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 bankruptcy in federal court.

To provide a free service, the nonprofit receives government funding as well as money from charities and some big names in Silicon Valley, such as former Google CEO Eric Schmidt .

Since founding Upsolve in 2018, the nonprofit says it has cleared more than $440 million in debt.

In addition to simplifying the process, Pavuluri said, he’s on a mission to bankruptcy. He says it’s seen as a moral failure even though bankruptcy is often used strategically in the corporate world to get a fresh start.

“We want to empower everyday Americans to have the same tools as the richest people and richest corporations in America,” he said.

But there are concerns – and not just from bankruptcy attorneys – about making bankruptcy so easy that its effects are ignored. Cynthia Podis, a Tennessee bankruptcy attorney, says the guidance the attorney gives has real value.

“The medical debt you have right now is probably just the tip of the iceberg,” she said, giving the example of a client feeling pressured with $20,000 in bills. medically overdue for an initial course of chemotherapy. “But you know that within the next four or five years you’ll have $150,000 worth of cancer treatment. You might not want to file Chapter 7 right now.”

Chapter 7 can only be used once every eight years. So if debt continues to accumulate, that won’t be an option for a while.

Bankruptcy also affects credit for years, making it difficult to qualify for a regular car loan or rent an apartment.

Erin Akery, who provides free financial advice for the United Way of Greater Nashville, says bankruptcy isn’t right for everyone. And the cost, while sometimes severe, forces debtors to consider the Chapter 7 trade-offs.

“That might not be so great for people who are looking for a quick, easy solution and it just isn’t the right path for them,” she said. “If people don’t have to go through that cost-benefit analysis, then there’s likely to be a lot of people filing for bankruptcy who really shouldn’t.”

But the consequences of fiscal debt are expected to intensify in the wake of the covid-19 pandemic, with a disproportionate impact on black Americans. By Upsolve data found that nearly half of users who are African-American consider the pandemic the main reason to apply. By comparison, less than 40% of white users consider color a major factor.

And medical debt is increasingly taking up a larger share than personal debt. Upsolve found that the average user had about $7,000 in pre-pandemic medical debt; One year after the pandemic, this number is already more than double.

Even financial advisors like Akery, who considers Chapter 7 a “nuclear option” say it can be a useful tool.

“That stigma keeps a lot of people from doing it, who can actually 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 filed for Chapter 7, she says she has no regrets. Her only complaint after ignoring the attorney was that she had to notify all of her creditors. But the app helped automatically generate the paperwork and send her instructions.

“I felt like I had a fresh start,” she said, adding that she wanted to “make it worthwhile.”

This story is from a partnership that includes Nashville Public Radio and KHN.

KHN (Kaiser Health News) is a national newsroom specializing in the production of in-depth coverage of health issues. Along with Policy Analysis and Exploration, KHN is one of the three main activities in KFF (Kaiser Family Foundation). The KFF is a nonprofit organization privileged to provide information on health issues to the nation. The app that tries to break the bankruptcy barrier for people with medical debt

Caroline Bleakley

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