Medical Debt Issues: Chapter 7 Is One Option

Medical bill debt is a common issue that leads many individuals to consider Chapter 7 bankruptcy for relief. Chapter 7 can provide a fresh start by discharging unsecured debts, including medical bills, allowing individuals to eliminate these obligations and alleviate financial stress. Here’s how Chapter 7 bankruptcy can help with medical bill debt:

Discharge of Medical Bills:

• In Chapter 7 bankruptcy, medical bills are treated as non-priority unsecured debt, similar to credit card debt and personal loans. This means they can be fully discharged, allowing you to wipe out substantial medical debt.
• For example, if Jane has $50,000 in medical debt due to an unexpected illness and she files for Chapter 7, she can potentially have all that debt eliminated, assuming she meets the eligibility criteria.

Eligibility for Chapter 7:

• 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. If it’s above, you may still qualify based on your disposable income and expenses.
• For instance, if John’s income is below his state’s median for his household size, he would likely pass the means test and be eligible to file for Chapter 7 to address his medical debts.

Asset Liquidation:

• Chapter 7 is known as a liquidation bankruptcy, where non-exempt assets might be sold to repay creditors. However, many states offer exemptions that protect essential assets, such as your home, car, and personal belongings, from liquidation.
• Suppose Sarah owns a car worth $5,000 and her state’s vehicle exemption covers up to $6,000 in equity. In this case, she would likely keep her car while still discharging her medical debts through Chapter 7.

Impact on Credit:

• While Chapter 7 provides relief from medical debt, it also has a significant impact on your credit score, remaining on your credit report for 10 years. However, for many, the opportunity to eliminate overwhelming debt outweighs the temporary credit challenges.
• For example, after Mike discharges his medical bills through Chapter 7, he might see a drop in his credit score. However, he can start rebuilding his credit immediately, potentially emerging in a stronger financial position without the burden of medical debt.

Process and Timeline:

• The Chapter 7 process typically takes about 4 to 6 months from filing to discharge. Once the bankruptcy is filed, an automatic stay goes into effect, halting collection actions on your medical bills.
• For instance, if Laura files for Chapter 7, she will experience immediate relief from collection calls and letters regarding her medical bills, with the entire process potentially concluding within a few months.

Chapter 7 bankruptcy can be a powerful tool for individuals overwhelmed by medical debt, offering a way to eliminate these debts and start anew financially. While it has implications for your credit and requires qualifying through the means test, the relief it provides from medical bill debt can offer a significant financial and emotional reprieve. Consulting with a bankruptcy attorney can help you navigate the process and determine if Chapter 7 is the best option for your specific circumstances.

Non-Bankruptcy Options

There are several organizations and resources that can provide assistance or guidance to help you manage or potentially reduce your medical bills. Here’s a list of some organizations and types of assistance they offer:

1. Nonprofit Credit Counseling Agencies:

• Organizations like the National Foundation for Credit Counseling (NFCC) can provide counseling and assistance in managing debt, including medical debt. They can help you understand your options, create a budget, and even set up a debt management plan.

2. Medical Bill Advocates:

• Companies like Medical Billing Advocates of America offer services to review your medical bills for errors and overcharges and can negotiate with healthcare providers and insurers on your behalf to reduce the amount you owe.

3. Charitable Organizations:

• Some charitable organizations provide financial assistance to individuals struggling with medical debt. For example, the HealthWell Foundation and Patient Advocate Foundation offer grants and assistance to eligible individuals to cover medical expenses.

4. Hospital Charity Care Programs:

• Many hospitals have charity care programs that provide financial assistance or discounted care to patients who meet certain income requirements. It’s essential to inquire directly with the hospital where you received care to learn about available programs.

5. State Health Insurance Programs:

• Depending on your location, there may be state-specific programs designed to help residents with medical expenses. For example, Medicaid programs can provide coverage for past medical bills for eligible individuals.

6. Crowdfunding Platforms:

• Websites like GoFundMe allow individuals to raise funds for medical expenses by sharing their stories and soliciting donations from the public. While this option may not cover all your debts, it can provide significant relief.

7. Legal Aid Societies:

• If you’re facing legal action due to medical debt, legal aid societies can provide free or low-cost legal assistance. They can help you understand your rights and represent you in negotiations or court proceedings related to your medical debt.

8. Consumer Advocacy Groups:

• Organizations like the Consumer Financial Protection Bureau (CFPB) offer resources and information on how to deal with medical debt and can assist in filing complaints against unfair billing practices.

Dealing with medical debt can be overwhelming, but you don’t have to face it alone. These organizations can offer guidance, negotiate on your behalf, or provide financial assistance to help you manage or reduce your medical debt. It’s important to explore all available options and reach out for help to find the best solution for your situation.

 

Medical Debt