How Bankruptcy Can Affect Health Investments
Bankruptcy is a serious business that can create upheaval in several parts of your life. Several indications that you may be headed for bankruptcy is taking out loans regularly, getting behind on bills and being unable to afford basic necessities. It is a condition in which a debtor cannot afford to repay their creditors.
This debtor could be an individual, or it could be an entity, such as a company. Regardless if you are the party who needs to file bankruptcy, or if it is your employer, you will find that this occurrence can cause your various health investments to fair very badly. Keep reading to learn how bankruptcy can affect health investments.
Bankruptcy’s Influence on Insurance
Health insurance is essential to the protection of an individual’s finances. Most people have their health insurance arranged through the company that they work for. Often, this allows for individuals to receive better rates.
Health insurance is not necessarily salvageable in the event that a company chooses to file Chapter 11 Bankruptcy. However, the employer must inform employees that their health insurance is in jeopardy at least 60 days prior to the ending of coverage.
Another type of insurance that can be heavily affected by bankruptcy is life insurance. Although courts will often allow a large percentage of the cash value of a policy to remain intact, they sometimes seize those policies not attributed to the person filing for bankruptcy, such as policies in their spouse or children’s names.
Bankruptcy’s Effect on COBRA
COBRA is a health insurance alternative that is offered to employees in the event that they are laid off, resulting in the loss of health insurance. COBRA remains an option for up to 18 months, and can be an invaluable tool when a breadwinner is between jobs. However, in the event that the employer chooses Chapter 11 Bankruptcy, COBRA is not available to employees.
Bankruptcy’s Effect on Social Security Disability Benefits
Unfortunately, there are many people who simply are unable to work, due to either serious mental or physical conditions. These folks often qualify for Social Security Disability Benefits. These benefits usually only help with the bare necessities of life, and many recipients struggle with keeping their finances in check. This leads to a high volume of these people wondering how filing for bankruptcy might affect their benefits.
Social Security Disability Benefits are actually completely protected through the Social Security Act, and cannot be garnished or levied in any way.
Bankruptcy’s Effect on Health Spending Accounts (HSA)
Health Spending Accounts, which are similar in nature to Flexible Spending Accounts, are becoming increasingly popular. These are programs that allow individuals to invest up to $2,900 tax free dollars into their HSA account annually. This money may also be withdrawn tax-free as long as it is utilized for approved health necessities.
Whether or not a person’s HSA account is protected should they choose to file bankruptcy is dependent upon the state in which they reside. Some states allow these funds to be exempt, while others require that these investments be used to pay debtors.
Bankruptcy is a serious matter. Keep an eye out for warning signs that you yourself are in trouble, such as repeated use of loans and tardy bill payment. Whether you or your employer or thinking of pursuing this path due to an inability to repay creditors, you should fully understand the impact that doing so will have on your health investments.