Medical bills are one of the inevitable uncertainties that almost everyone has to face at a certain time in their life. Unluckily, a large number (39%) of Americans are unable to meet unplanned emergencies, including medical bills costing more than $400. As health costs in the U.S. keep rising toward $4 trillion a year, it's easy to accumulate medical debt fast, even with health insurance, and find yourself thinking about turning to bankruptcy.
This article looks at what you should know if you're considering bankruptcy due to medical debt.
Medical Debt and Bankruptcy
The question remains whether or not it's possible to file for bankruptcy because of medical debt. Yes, you can! The first you should realize is that filing bankruptcy because of medical debt is the same as filing for any other reason –all the processes and logistics are the same.
Thus, you can eliminate, wipe out or discharge all medical debt through bankruptcy upon receiving your bankruptcy discharge. This debt includes medical bills for any treatment that happened before filing.
Approximately 62% of bankruptcies include significant medical debt. However, there's no such actual thing as a medical bankruptcy. Before filing for bankruptcy due to medical debt, you should make serious considerations since it affects your credit for some time, even ten years, thus your ability to get a loan or mortgage.
But on the bright side, filing for bankruptcy gives you the chance to start afresh. You can rebuild your credit score and end up in an even better financial position after some time.
What Type of Bankruptcy Can I File for My Medical Debt?
When filing for bankruptcy, your debts are categorized as secured, unsecured, or priority debts. Secured debts such as car loans are backed by property, while unsecured debts aren't connected to any property. These include credit card debt, personal loans, and medical debts. Priority debts are unsecured debts like tax debts and alimony that get special treatment as defined in the Bankruptcy Code.
Since medical bills are unsecured debts, you can file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy discharges or wipes out most or all of your medical debt, including those you've charged on credit cards or paid using personal loans. The process takes a few months, after which all your debt is eliminated without having to give away any of your exempt assets or property.
However, you must pass a "means test," showing that your household income, less all expenses are less than your state's median income. Otherwise, you don't have to pass the means test if your earnings are below the state median.
Filing for Chapter 7 bankruptcy to offset your medical debt is good since:
- It's quick –up to 4 months
- It wipes out more than medical debt. It includes credit card debt, personal loans, and other debts.
- You don't pay creditors
- You must qualify and pass the "means test"
- You might have non-dischargeable debts like support arrears to settle afterward
- You could lose luxury or non-exempt property.
- Your credit score will suffer.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to pay your medical debt through an affordable monthly plan based on your income ability. The repayment plan usually takes between 3 and 5 years.
While Chapter 13 bankruptcy can help save your property, it's expensive in the long run and can cause too much debt.
Things To Consider Before Filing a Medical Bankruptcy
Before settling on bankruptcy to help with your medical debt, here are a few questions to ask yourself:
- Has your illness resolved, or can it recur and get you into another financial predicament?
- Can the medical collect from you? Are you directly liable?
- Can you get payment assistance?
- How about your insurance provider?
- What other debt can you eliminate with bankruptcy?
- Do you meet the "means test" requirements to wipe out medical bills quickly in Chapter 7?
- Is your income high enough to wipe out your medical debt while catching up on other debt in line with Chapter 13 bankruptcy?
It's advisable to get an attorney to help you decide on the best bankruptcy chapter to deal with your medical debt.
Are you looking for attorneys to help with filing for bankruptcy to wipe out your medical debt or any other financial or legal matter? Law Offices of James C. Shields is your go-to firm. Please contact us today to get started.