First of all, let me clarify that there is not such official or legal terms as 'Medical Bankruptcy'. This terms is one of the most misunderstood terms in finance. What this term actually signifies is the bankruptcy due to medical bills. As per studies conducted, medical bills is one of the top three reasons for individuals for filling bankruptcy. In fact, huge medical bills account for more than 60% for cases being filed for bankruptcy as per studies conducted at Harvard University. Elizabeth Warren, a Harvard professor, wrote recently that a study had shown that medical costs were a major factor in bankruptcy filings in the United States.

You would think that taking medical insurance is the best way to avoid this situation. But the fact is, even individuals who were medically insured have been filing for bankruptcy. The private medical insurance is not the way out in these situations. As many as 78% of those filing for bankruptcy due to healthcare costs had medical insurance when their illness began.

As per studies, US citizens filing for bankruptcy with private medical insurance in-place had unpaid healthcare costs amounting to an average of $17,749. While those who filed without coverage reported average unpaid medical bills of $26,971. Even if there is a difference of about nine thousand dollars in above figures, this still shows that medical insurance is just not working.

President Obama is working towards Healthcare reforms in a big way. Some of the things which are being targeted are:

• Reduce the cost of long-term health care costs for both business and government.
• Guarantee a choice of doctors and health care plans.
• Reduce the number of people filing for bankruptcy due to unaffordable medical bills.
• Improve patient safety and overall quality of care.
• Provide investment in wellness and prevention
• Remove any barriers to obtaining medical insurance due to pre-existing medical conditions.
• Help U.S. citizens to maintain their coverage when they change or lose their job.

If this bill becomes law, it is surely going to help millions of Americans. And the cases of so called medical bankruptcy will be greatly reduced.

But this doesn't mean that individuals do not have any responsibility towards this issue. The individual should take steps whatever they can to prevent themselves falling into this situation. Here are three steps you can take to avoid medical bankruptcy:

1. Take medical insurance – I know I have mentioned above that medical insurance doesn't prevent medical bankruptcies. But, it can prevent this if you have adequate coverage. Most cases mentioned above are for people who were under insured. Talk to experts and find out optimum healthcare coverage for yourself and your family. Even if this means that you have to cut down your other expenses for healthcare premium. It is cheaper to pay more healthcare premium than not having a healthcare coverage at all.
2. Verify your medical bills – Errors in medical bills are not uncommon. Various times, you will see incorrect bills coming in from hospital. Check your bill in detail and make sure that you know exactly what are the charges. If you don't understand something, ask you doctor or hospital. Its your right. With some due diligence, you can save hundreds or even thousands of dollars.
3. Don't convert your medical bills to loans – This is a very important point to remember. Don't make the mistake of putting your medical bill on your credit card on credit or converting it to loan. And worse yet, if you get a home equity loan then you could lose your house! Maximum they can do is to give your case to collection agencies. Don't get scared. Just talk to your hospital and chalk out a payment plan with them.

Medical bankruptcy or bankruptcy due to medical bills is pretty common due to unusually high cost of health care. But if you take some preventive steps, you should be able to prevent yourself in coming into this situation. Even if you have no other choice but to file for bankruptcy, check with a qualified attorney or legal counselor to see how to file a medical bankruptcy.

Check out other related hubs about bankruptcy which might be useful.

• How to go bankrupt?
• Loans after bankruptcy.
• How to find a suitable bankruptcy alternative?
• Medical bankruptcy
• How to get a credit card after bankruptcy?
• Do it yourself bankruptcy
• Buying a car after bankruptcy
• Life after bankruptcy discharge