BUSINESS
08/19/2011 11:25 am ET Updated Oct 19, 2011

Medical Bills Drive Americans Into Bankruptcy As Many Struggle To Pay Debt

As the economic recovery remains slow, many Americans have found that basic payments have suddenly become unaffordable.

Those payments include medical bills, which increasingly are pushing Americans into personal bankruptcy, the New York Times reports. About a fifth of people seeking financial counseling this year and last said debt related to medical bills was their main reason for deciding to enter bankruptcy -- up from as low as 12 percent in the previous two years -- according to counseling agency CredAbility, the NYT reports.

A bitter combination of forces has left many Americans unable to meet the obligations that just a few years ago would have been manageable. Payrolls shed millions of jobs in the months after the financial crisis, as employers contended with a shrinking economy. And home prices entered a punishing decline, eroding the value of many people's most valuable asset.

A high number of people who had never before had serious trouble paying their bills now had a "negative credit experience," according to a Deloitte survey late last year. One in seven of these previously creditworthy borrowers entered default in the wake of the economic downturn.

With a job loss often comes the loss of health insurance, making it even more difficult for Americans to pay for care. Many have resorted to running up credit card debt to pay off medical bills, the NYT notes.

And as economic prospects once again seem grim, layoffs have returned. A variety of indicators in recent weeks showed the economy increasingly vulnerable to a new recession: Growth slowed in the first few months of the year, manufacturing barely expanded, the stock market tanked and consumer sentiment plummeted.

The unemployment rate fell slightly to 9.1 percent in July -- but in large part that's because thousands of workers dropped out of the labor force. That rate would be higher if it included the workers who have given up looking for work in the years since the crisis, according to a recent report from Wells Fargo. Just shy of 64 percent of the population is now considered part of the labor force.

And as home prices continue to fall, homeowner wealth has shrunk. After peaking last year, the stake that Americans actually own in their homes -- known as homeowners' equity -- has fallen, according to Federal Reserve data. It reached 38 percent in the first three months of this year, a level not seen since the second quarter of 2009, when the economy was still in a recession.