Doctors aren't immune from bankruptcy upswing

Vulnerable not only because of their own finances, physicians also are affected when their patients get overwhelmed with debt.

By Katherine Vogt, amednews staff. Oct. 6, 2003.

Physicians are among those wincing from a sharp surge in the number of individual bankruptcy filings over the last year.

Fueled by a weakened economy and increased unemployment, personal bankruptcies in the United States reached an all-time high over 12 months with 1.6 million filings for a yearlong period that ended June 30, according to the American Bankruptcy Institute. The number was up 10% from the same period a year earlier.

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Though data were unavailable on which professionals filed the most bankruptcies, experts say doctors are among those who have become overwhelmed by debt and are increasingly asking for help to get relief. The trend is expected to persist indefinitely.

Whether they are experiencing lower reimbursements, buried under debt from loans or reeling from an expensive divorce or hefty malpractice judgment, physicians have plenty of reasons to file for bankruptcy, experts say.

"[Physicians] are really no different than other consumers," said Miami bankruptcy attorney Andrew Hellinger. "Some have household debt trouble and extended themselves on credit cards, some of them will have medical malpractice judgments that they can't pay. ... Others have fallen on hard times as the economy has taken swings and the insurance industry has changed how they do business with them."

Physicians may have some vulnerability to bankruptcy that is specific to their profession, said Marianne Culhane, resident scholar at the American Bankruptcy Institute. For example, she said fear of malpractice judgments may have led some physicians to dubious asset protection and tax-avoidance schemes, which can cause financial ruin. Also, she said some physicians might have been pulled into bankruptcy because they had personally guaranteed loans tied to a practice that failed.

1.6 million people filed for bankruptcy in the last year.

Karen Gross, a professor at New York Law School, said doctors also might be on the other side of the bankruptcy table as creditors.

"We do know that one of the reasons for filing is large medical debt," Gross said. And medical debt is often discharged in bankruptcy court and has no priority in payment through the proceedings. That means a physician who is owed money by a patient may get nothing if that person successfully navigates through the bankruptcy system.

There are different types of bankruptcy filings for different needs. The most common individual filing is known as Chapter 7, through which a debtor's assets are liquidated and used to pay creditors. The debts owed may be discharged in just a few months through this procedure.

Another type of personal bankruptcy filing, Chapter 13, is more suited to people who are reluctant to turn over assets. This filing is designed for an individual who has a regular source of income. It allows the debtor to propose a plan to repay creditors over several years.

Experts say individuals who owe large amounts and have a high net worth may be required to seek aid under Chapter 11, a reorganization plan usually used by businesses.

Melissa Jacoby, a professor at Temple University School of Law in Philadelphia, said debtors should consider what they owe, their assets and their income before filing. She said they may want to seek more than one legal opinion about whether a bankruptcy filing is the best solution. She also warned that anyone who files bankruptcy must be prepared to disclose all financial history -- even if it includes something embarrassing.

Not everyone with debt will qualify for help through bankruptcy court. For example, Gross said, it is difficult for professionals to get bankruptcy relief from large debts caused by student loans.

Although personal bankruptcies rose, business filings in the same time fell 5.2% from a year earlier to 37,182, the bankruptcy institute said. Culhane said businesses might have fared better because of low interest rates while they contributed to increased personal filings by laying off workers.