Chapter 7 Bankruptcy is an avenue for many people who are struggling under piles of debt and cannot manage it proactively. There are many ways bankruptcy may affect you, but one of the biggest things it can do is help you out of a sticky financial situation.
Medical debt is a common reason for those who file bankruptcy. Medical bills are included in a bankruptcy plan as unsecured debts, which some people file for bankruptcy to get rid of it, especially in instances where the debt is significantly high.
In a study with the title “Prevalence and Correlates of Medical Financial Hardship in the USA,” medical hardship is very common among individuals within the ages of 18 and 64, and those who don’t have a healthcare plan. The reason why financial hardship occurs is due to high patient out-of-pocket (OOP), which is caused by high deductible plans.
However, if the only reason why you want to file for a medical bankruptcy discharge is due to medical debt, then you should first consider other options before you make any significant decision.
Medical Debt in Bankruptcy
Generally, medical debts fall into a category of debt known as “unsecured debts”—these are debts owed to creditors that don’t have a lien on your asset. Other debts that fall into this category of debts are personal loans, alimony, old utility bills, credit card debts, student loans, child support payments, and most taxes.
That a debt is unsecured does not automatically guarantee that they will be eligible for a bankruptcy discharge. An example of an unsecured debt that can’t be discharged is child support and alimony. Also, you can’t get a bankruptcy discharge on most student loans and taxes. However, under normal circumstances, medical bills are dischargeable in a bankruptcy case.
Filing Chapter 7 Bankruptcy to Get Rid of Medical Bills
The majority of your unsecured debts are discharged in Chapter 7 bankruptcy. This means that you’re no longer obligated to pay the creditor what you owed. The creditor no longer has the right to file a lawsuit, send collection letters, call you, or harass you in any way about your discharged debt. It’s important to keep in mind that Chapter 7 bankruptcies can vary from state to state. A Texas Chapter 7 bankruptcy may look different from a Georgia Chapter 7 bankruptcy. Make sure you understand the differences in your state before getting started!
The majority of Chapter 7 bankruptcy cases in the US are termed as a no-asset Chapter 7 case. This is a type of case where the debtor’s property is not liquidated. If otherwise, the Chapter 7 bankruptcy trustee has the right to liquidate a debtor’s asset and use the money to settle unsecured debtors.
As such, before you file a Chapter 7 bankruptcy case, you should first consider if the process will make you lose your assets or not. Although there are bankruptcy exemptions you can use to protect your asset from being sold by a bankruptcy trustee. However, if the value of the asset is significantly higher than what the exemption will cover, then you should not file for a Chapter 7 bankruptcy exemption for your medical bill.
Chapter 13 Bankruptcy and Medical Bills
Chapter 13 bankruptcy works by coming up with a three to a five-year repayment plan for your debt. After this, you’ll receive a bankruptcy discharge on those debts. Most times, the debtor only pays a small percentage of the money owed to an unsecured creditor.
After meeting the financial obligation as stipulated by the bankruptcy plan, the Chapter 13 bankruptcy will be discharged off any amount left, provided that those debts can be discharged by bankruptcy. It is important to understand Chapter 11 subchapter 5 vs Chapter 13 Bankruptcy to see your options. If Chapter 7 is on the table as well, research Chapter 7 vs Chapter 11.
As such, if you owe a medical bill, then the healthcare provider will get a fraction of your healthcare debt. After paying the money stipulated by the bankruptcy court, the court will write-off the remaining amount.
A chapter 13 bankruptcy is a very good alternative to those who don’t meet the requirement for getting a Chapter 7 bankruptcy discharge. Chapter 13 bankruptcy is a very great alternative for someone whose property will be liquidated by a bankruptcy trustee if they apply for a Chapter 7 bankruptcy discharge or someone who is behind on car loan and mortgage payments.
A major demerit to filing for Chapter 13 bankruptcy is that it takes a long time to finally complete the repayment plan, and get the bankruptcy discharge needed to be debt-free. The average chapter 13 bankruptcy plan will take 60-months to finish paying up. Refusal to pay up within the agreed period means that the debt will still exist, and the creditors are free to take legal action to reclaim their money.
Are There Other Options to Repay Medical Debts?
If it’s only your medical debt that you have problem paying, then you should seek other debt settlement options. For example, if you sit with your debtor or you hire a debt relief company to sit with your debtors to try and settle your medical debt, both of you can come up with a plan that is beneficial to both parties.
To make your offer more enticing, you should try to negotiate a one-time lump sum payment for an agreed amount. If you’re willing to explore further, you will find other debt consolidation option that doesn’t involve filing a Chapter 7 or Chapter 13 bankruptcy case. Filing is dependant on where you are, so if you are in, for instance, Minnesota, you would want to research filing a Minnesota Chapter 7 bankruptcy
Bankruptcy is a legal debt relief option for those who cannot manage their debt. With medical bills getting higher and higher potentially due to high deductible healthcare plan, many individuals may look at Chapter 7 bankruptcy to help alleviate the debt and produce debt freedom. That said, there are alternatives and pros and cons to consider with each debt relief option.