There are numerous reasons people have for filing bankruptcy, and medical bills are among the most common ones. However, it is important to know that bankruptcy is not a magic wand which will remove all your debts, but it is a very useful tool to get you back on track. In the USA, medical bills can be quite a burden on the house budget, as medical care is not subsidized by the government.
If your medical bills are becoming a huge burden, consult a bankruptcy attorney to help you figure out what the best course of action is in your particular case. Even though each bankruptcy case is different, there are some basic things about the medical debt which don’t change. Here’s how medical bills will behave during bankruptcy.
Classification of Debts
When you start the bankruptcy process, all of your debt is categorized and labeled. Some kinds of debt, like student loans or tax owings, are marked as high priority and cannot be written off during bankruptcy. Medical bills, however, are not among these stubborn debts.
Instead, medical debts are categorized as regular unsecured debt, which makes them a prime candidate to be written off. Just like credit cards, these debts are very easily deleted during the bankruptcy. However, before you can actually get rid of this burden, you need to pick the type of bankruptcy which better suits you and your situation.
Chapter 7 is the most thorough and complete kind of bankruptcy. In essence, you are entitled to writing off all of your unsecured debts, including rent, utilities, credit card debt, and medical bills. There is no fixed limit to the amount of money owed which you can write off, which can be of great help to people whose debts have exceeded other means of repayment. Still, Chapter 7 bankruptcy is only available to you if you pass the means test.
Chapter 7 means test is a simple tool which creditors use to determine whether you qualify for Chapter 7 bankruptcy. It boils down to your disposable income; if you have too much of it, you won’t be eligible for this type of bankruptcy. If your income is below the median income in your state for a similar household, and it has been like that for at least 6 months, you will automatically pass the test and can file for Chapter 7. Otherwise, you will need to complete a lot more forms, which is why it is always good to consult a bankruptcy lawyer to guide you.
If it turns out that you cannot file for Chapter 7 bankruptcy, you still have the option of filing for Chapter 13. This type of bankruptcy is a very different thing, but in essence, it can give you reprieve at the time you need it the most.
However, you need to be aware that, instead of discarding the debts, Chapter 13 gives you the chance to reprogram your debts and recover from the financial slump you have found yourself in. Typically, people with decent income file for this kind of bankruptcy because their disposable income makes repayment a viable option. Medical bills are grouped together with other kinds of unsecured debt, like credit cards and distributed equally across your payment plan.
No matter how many different creditors you have, the amount you have agreed topay each month is distributed between them, typically proportionally to the amount you owe each of them. However, Chapter 13 is not all-powerful either. It has a limit which your debt cannot exceed if you want to be eligible. Currently, the limit is $394,725 but it is adjusted every so often.
Most people have less than $400,000 of unsecured debts, but medical bills, in particular, can quickly pile up and exceed this amount. That’s why you need to make sure to act before this happens to you.
Medical bills are one of the most common reasons people file for bankruptcy, even though they may have been fiscally responsible all their lives. Through no fault of their own, some people are pushed into this life-changing decision. However, with a good bankruptcy attorney, you can be sure that you will get the best possible deal from an unfavorable situation.