Is Medical Debt Ruining Your Financial Health?

Medical debt is a common reason many individuals find themselves considering bankruptcy. If medical bills are overwhelming your financial health, bankruptcy might offer a path to relief. Here’s how bankruptcy can address medical debt:

Chapter 7 Bankruptcy and Medical Debt:

• Dischargeable Debt: Medical bills are considered unsecured debt, similar to credit card debt, and can typically be discharged in Chapter 7 bankruptcy. This means that once you complete the bankruptcy process, you are no longer legally required to pay back the medical debt.
• Means Test: To qualify for Chapter 7, you must pass the means test, which compares your income to the median income for your state. If your income is below the median, you’re likely eligible to file for Chapter 7.
• Liquidation: Chapter 7 involves liquidating your non-exempt assets to pay off creditors. However, many personal assets, including basic household furnishings, clothing, and a personal vehicle up to a certain value, are often exempt.

Chapter 13 Bankruptcy and Medical Debt:

• Repayment Plan: Chapter 13 bankruptcy reorganizes your debts into a manageable repayment plan, lasting either three or five years. Your medical debts will be included in this plan, and you’ll make monthly payments based on your income and allowable expenses.
• Debt Reduction: In many Chapter 13 cases, you won’t pay back unsecured debts in full. The amount paid is based on your disposable income. After completing the repayment plan, the remaining unsecured debt, including medical bills, is typically discharged.
• Protection from Creditors: Chapter 13 also offers an automatic stay, preventing creditors from pursuing collection actions, giving you breathing room to reorganize your finances.

Considerations Before Filing for Bankruptcy Due to Medical Debt:

1. Non-Bankruptcy Alternatives: Before opting for bankruptcy, explore alternatives like negotiating with healthcare providers for a reduction in the bill or setting up a more manageable payment plan.
2. Impact on Credit: Bankruptcy has a significant negative impact on your credit score and remains on your credit report for up to 10 years for Chapter 7 and 7 years for Chapter 13.
3. Legal and Filing Costs: Consider the costs associated with filing for bankruptcy, including attorney fees and filing fees. While you can file pro se, hiring an attorney can help navigate the complexities of bankruptcy law.
4. Future Financial Planning: Post-bankruptcy, you’ll need to rebuild your credit and manage your finances carefully to avoid future financial distress.

If medical debt is jeopardizing your financial health, bankruptcy might provide a way out. Chapter 7 can potentially eliminate medical debt entirely, while Chapter 13 can make it more manageable. However, it’s essential to weigh the pros and cons, consider all alternatives, and consult with a bankruptcy attorney to determine the best course of action for your specific situation.

Medical Debt