The Right Coast

November 28, 2005
The Bankruptcy Urban Legend that Refuses to Die ....
By Gail Heriot

Loyal readers may recall the posts I did –here, here, here, and here–about a much-ballyhooed bankruptcy study that was announced earlier this year, just before Congress was scheduled to consider the Bankruptcy Abuse Prevention and Consumer Protection Act.

Some newspapers–unwisely relying on the authors’ inaccurate press releases–reported that crushing medicals bills had been found to cause half of all bankruptcies. Others–just as inaccurately-- reported the study had found illness or injury to be a major cause in half of all bankruptcies. Both statements were false.

The truth is that the study was not about bankruptcies caused by medical bills. It was not even about illness or injury as a major cause of bankruptcies. It was about bankruptcies that can–at least if you a willing to stretch things–be classified as medically related. Included as medically related were bankruptcies involving compulsive gambling or alcohol or drug addiction. And that’s just the tip of the iceberg. I’m sure that some debtors would have laughed themselves silly had they found out that their bankruptcies had been classified by the study as medically related. (See previous posts.)

What concerns me today is how thoroughly the meme that IT HAS NOW BEEN PROVEN THAT HALF OF ALL BANKRUPTCIES ARE CAUSED BY CRUSHING MEDICAL DEBT has now entered the world of public policy. As a USD faculty member, I have attended no less than two presentations on bankruptcy law this past semester by outside scholars. In each of them, the speaker let drop off his tongue the "fact" that half of all bankruptcies are caused by crushing medical debt. Evidently, these poor souls spend more time reading the MSM than they do the Right Coast (or more importantly, the actual studies they cite in faculty presentations). Let me say it one more time, perhaps a tad louder, just in case somebody wasn’t listening: NO, THAT’S NOT TRUE.