Business

/

ArcaMax

App attempts to break barriers to bankruptcy for those in medical debt

Blake Farmer, Nashville Public Radio on

Published in Business News

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 with federal courts.

To offer the service free of charge, the nonprofit receives government funding as well as money from charitable foundations and some big-time Silicon Valley names, such as former Google CEO Eric Schmidt.

Since Upsolve’s founding in 2018, the nonprofit says, it has relieved more than $440 million of debt.

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

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

But there are concerns — and not just from bankruptcy attorneys — about making bankruptcy so easy that the implications are overlooked. The guidance attorneys give has real value, said Tennessee bankruptcy lawyer Cynthia Podis.

“The medical debts you have right now might just be the tip of the iceberg,” she said, giving the example of a client feeling the pressure of $20,000 in overdue medical bills for an initial round of chemotherapy. “But you know that over 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 right now.”

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

Bankruptcy also devastates credit for years, making it difficult to qualify for a conventional car loan or an apartment lease.

 

Erin Akery, who provides free financial counseling with the United Way of Greater Nashville, said bankruptcy isn’t right for everyone. And the cost, while sometimes prohibitive, forces those saddled with debt to consider the trade-offs of Chapter 7.

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

But the repercussions of financial debt are expected to grow in the aftermath of the covid-19 pandemic, with a disproportionate impact on Black Americans. Upsolve’s data shows nearly half of its African American users cite the pandemic as the primary reason for filing. By comparison, fewer than 40% of white users point to covid as the main factor.

And medical debt increasingly represents a larger share of personal debt. Upsolve found the average user had about $7,000 in medical debt before the pandemic; a year into the pandemic, the figure had more than doubled.

Even financial counselors such as Akery who consider Chapter 7 the “nuclear option” say it can be a useful tool.

“That stigma keeps a lot of people from doing it who really could benefit from it and come out the other side with a more healthy financial future,” she said. “But on the flip side, there are people who file for bankruptcy every eight years.”

Six months into Constant’s Chapter 7 filing, she said she has no regrets. Her only complaint after bypassing a lawyer was that it fell to her to notify all her creditors. But the app helped generate the paperwork automatically and sent her instructions.

“I’m feeling like I got a fresh start,” she said, adding that she wants to “make it count.”

©2022 Kaiser Health News. Visit khn.org. Distributed by Tribune Content Agency, LLC.