Can You File Bankruptcy on Medical Bills
What is medical bankruptcy? Can you file bankruptcy on medical bills? What are the possible options? A medical bankruptcy can give you relief from your huge medical bills. It can come to your rescue when you are going through a financial crisis and unable to pay your medical bills. However, it might affect your financial future. A medical bankruptcy might have some undesirable consequences on your credit score, house, and debt. Therefore, you should do thorough research about the possible options, benefits, and impacts before making the final decision. Once you know the consequences, you can prepare yourself for all the challenges ahead.
Just imagine what will happen if you find it hard to pay your outstanding bills. You will be in a troublesome situation since the creditors will try their best to collect their unpaid medical bills. They might resort to different ways to harass you. In some conditions, they might think of legal action. All these things are going to cause a lot of trouble in your life. Your family members are going to suffer as well. The creditor can get the court’s decision in his favor, and that can even worsen your condition.
Even if the bankruptcy is not the best option to deal with a financial crisis, it can give you some immediate relief. You can expect two benefits from medical bankruptcy. First, the creditors cannot harass you anymore. The effect will be immediate. Next, it will clear some or all of your debts. So, if you think that it is beyond your ability to pay your medical bills, you can consider a medical bankruptcy. It is worth mentioning that many file a bankruptcy to get some relief from the debt burden. In this article, we will discuss the possible options, benefits, and drawbacks of medical bankruptcy. Also, you will be aware of some other alternatives that you can consider if you do not find the medical bankruptcy a favorable solution for you.
What Is Medical Bankruptcy?
From the term itself, you might have realized that medical bankruptcy is related to your medical expenses. However, you might not find any official term like medical bankruptcy. But, it can be effective to help you with your medical bills. If you check the Chapter 7 and Chapter 13 bankruptcy, you will find the medical debt category. You can file under that category for your outstanding medical bills. The process can affect your working ability as well as any outstanding credit card debt. Therefore, you will have to understand Chapter 7 and 13 before considering one. In the case of any confusion, you can take the help of legal experts. As the impact will be on your future, you should not take any decision in haste.
How Your Medical Debt Will Be Treated in Bankruptcy
As stated above, there is nothing like medical bankruptcy. Your medical debt will come in the categories of Chapter 13 and Chapter 7 bankruptcy. The laws will handle your bankruptcy depending on secured or unsecured debt. Some debts that include child support, taxes, and alimony will not be discharged by declaring bankruptcy. However, some secured and unsecured loans can be minimized or even wiped out through bankruptcy.
When it comes to the secured loan, it will cover your debts backed by tangible property or collateral. Your car loans or home mortgage will come under the secured loans. Your unsecured loans such as your medical bills and credit card expenses are not secured by the collateral. The unsecured loans can be entirely eliminated by declaring bankruptcy. You just need to choose the right type to expect a better outcome.
What Type Can Eliminate the Medical Debt Completely?
As mentioned above, you can file a medical bankruptcy under Chapter 13 and Chapter 7. Your unsecured loans such as medical bills paid by your credit card can be completely wiped out under Chapter7 bankruptcy. However, there will be some eligibility criteria to qualify for such bankruptcy. First, the disposable income needs to be below the median income of your state. Or, you will have to pass a “means test”. The process will access your expenses as well as income. Many people prefer Chapter 7 bankruptcy. If you meet the eligibility requirements, it can wipe out your unsecured debts. Also, the process will be less time-consuming than Chapter 13. Let’s know more about both these types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy can be helpful for all those who find it hard to repay their outstanding debts. Once you file the bankruptcy, the court will check your debt amount, debt type, assets, and your income. With this type, your medical debt will be wiped out within a few months. As stated earlier, Chapter 7 will have some specific requirements. Have a look at the following to know this is a viable option for you or not.
- The income needs to be below the median income of your state.
- The court will assess your property, and some of them might be liquated to pay the creditors.
The process will take around four to six months. After the completion of the process, the debts will be forgiven or discharged.
Short-term & Long-term Impacts
Immediate Relief
Immediate relief is one of the key benefits of Chapter 7 bankruptcy. It will cover all of your medical expenses that include healthcare costs charged to your credit cards. Once you file this bankruptcy, it will immediately stop your creditors to harass you. Also, you will have the option to temporarily halt the foreclosure process. You can expect a fast outcome since it will take only four to six months from the date of filing to enable you to get rid of all of your medical debts. In brief, you can be in a better mental and financial condition within a matter of four months. It can be a great relief especially when you are having a difficult time repaying your loans and answering the creditors.
Loss of Assets
Yes, bankruptcy will have some negative impacts as well. You might not have to be bothered about your medical bills. However, you can lose your assets, even your home. This is a severe consequence that anyone can experience while filing Chapter 7 bankruptcy. The law will vary slightly depending on the state you are living in. But you might lose some of your property in most of the cases.
Relief from Non-medical Debt
Another benefit of Chapter 7 bankruptcy is that it will eliminate some other unsecured loans that include your personal loans as well as credit card debts.
Affects Your Credit Score
Once you file bankruptcy, you should prepare yourself for the negative impacts on your credit score. All forms of bankruptcy including the medical bankruptcy will hit your credit score. The impact will be decreased over time.
Impact on Your Family Health
If you file a medical bankruptcy, you might face difficulties to get the best treatment for you and even for your family since your doctor might not find you reliable and worth considering. Your doctor might not entertain you anymore. Therefore, some prefer to pay their doctor’s fees even after filing bankruptcy to maintain a good relationship with the healthcare professional.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy will enable you to group your unsecured debts and repay them through a new repayment plan within three to five years. Also, the amount of your outstanding medical bills can be reduced. The court will access your income, expenses, and non-exempt assets to reduce the amount. Chapter 13 Bankruptcy might not be suitable if you are having a financial crisis and unable to repay your loans even if you get three to five years of the repayment plan.
Chapter 13 Bankruptcy can be a good option if you believe that you have enough money to repay the outstanding debts within a few years. The benefit is that you will not have to lose your property to repay the debts that you might experience with chapter 7 bankruptcy. You will not lose your vehicle, home, or any other personal assets with Chapter 13. Your unsecured loans might not be wiped out entirely. But, the amount could be reduced substantially, and that will ultimately lessen the burden. At the end of the repayment plan, all the remainders will be discharged. Here are a few other things that you should know about Chapter 13 bankruptcy.
- You will have to repay the outstanding loans between three and five years. The court will decide the repayment plan depending on your debt amount and your income levels. Even if you will have to pay the outstanding loans, some remaining amounts will be discharged at the end. Once the repayment plan comes to the closer, you will be freed from all the further payments.
- There will be some debt limitation to file Chapter 13 bankruptcy. If your secured loan amount is more than $1,184,200 and unsecured debt is above $394,725, you cannot file Chapter 13 bankruptcy.
- A regular income is a must to prove your repayment status. The court needs to be convinced that you are able to repay your reduced debts.
- The process will be long and might take years. However, if you go with Chapter 7 bankruptcy, you can expect an immediate result within four to six months.
Short-term & Long-term Impact
Debt Relief
Chapter 13 bankruptcy might not give you the complete relief from your outstanding bills. However, it will reduce the amount to lessen your burden. You can get three to five years of plan to repay your loans. The remaining amount will be discharged at the end of the plan. But make sure that your income is supporting you to repay the loans within the given repayment period. If you will fail to do so, you will be again in the same situation. So, know your financial condition and then decide.
Affects Your Credit Score
Your credit score will be impacted regardless of the bankruptcy type you choose. Both Chapter 7 and Chapter 13 bankruptcy will hit your credit score for around ten years. Within this period, you will face difficulties to qualify for a loan.
Impacts Your Future Health
As you know, once you declare bankruptcy, you will not be able to win the trust of healthcare providers anymore. Even if you will be repaying your loans, it will take time to rebuild the trust.
Chapter 7 vs Chapter 13
Both these bankruptcy options can give you relief from your medical debts. However, the consequence and impact will vary depending on the type. More importantly, all cannot file both these types of bankruptcy. There are some eligibility criteria and restrictions. First, you will have to check the eligibility criteria, and then it will be easier for you to make the right choice. Go through the following to know when you should consider Chapter 7 and what makes Chapter 13 worth considering.
When Is Chapter 7 Worth Considering?
If you are going through a difficult financial situation and there is no hope for any financial gain in the near future, you can go with Chapter 7. You should consider this bankruptcy type as the last option. There is no doubt that you will get immediate relief. There will be no more phone calls. You and your family will not have to suffer more due to the harassment from creditors. But the downsides of Chapter 7 should not be overestimated. You might lose your vehicle and even your home. As you are having a difficult time, it is going to make the condition worse. You will need more time and effort to restore your financial confidence. The impact on your credit score is also going to affect your ability to apply for future loans.
When Should You Consider Chapter 13 Bankruptcy?
Chapter 7 can give you immediate relief. It might wipe out your loan completely. But you are going to pay a huge for this. Some exceptions can be made. But this is not always possible. In most cases, you are going to lose your assets. However, if you consider Chapter 13, you will not have to go through this. All you need is a regular income to prove your repay status. The process might take a long, even years. You are going to face all the difficulties during this period. But the benefit is that the remaining amount will be discharged at the end of the repayment plan.
Other Alternatives
Bankruptcy is not the best solution for a financial crisis. The relief will not come without any consequences. You will have to pay for it for a decade since it will impact your credit score and your loan-taking ability. Therefore, you should always research the alternatives. Weigh the positives and negatives of both to know which one can be a better option. Here are a few alternatives to medical bankruptcy.
Negotiate With Your Doctor
You can try to negotiate with your doctor. Discuss all the possible options such as a repayment plan with lower interest. If you will be able to convince your doctor, you will not have to go through the hassles of bankruptcy. Unlike other creditors, hospitals are known for being a bit generous when it comes to negotiating medical bills especially when it is uninsured. Give it a try before considering bankruptcy.
Take the Help of Experts
You can talk to a credit counselor to find a solution to your problem. They can help to bring your finance on track. They know how to repay the loans with better management of finances. If you choose a non-profit credit counseling agency, you will not have to spend on the counselor.
How To Start
Bankruptcy is not an easy process. You should never consider this option without knowing both the positives and negatives. Any wrong decision will make you suffer for a long. If you think that bankruptcy is the best remedy for your current financial situation, talk to the legal experts. Without consulting experts, you should not decide the next step. Also, the bankruptcy proceeding might require you to consult a court-approved counselor. It is a part of the bankruptcy process. You might need to collect a few documents that include pay stubs, income tax returns, bank statements, and your monthly bills. If you are all set to move forward, talk to an experienced attorney to navigate the way through.
Wrapping up
There is nothing like medical bankruptcy. However, you can consider Chapter 7 and Chapter 13 to file a bankruptcy for your outstanding medical bills. It is always suggested to consider all the possible alternatives before planning to file a bankruptcy. Bankruptcy in any form is not favorable to your financial future as well as reputation. Also, you might lose your assets if you go with Chapter 7. If you think that your financial position is making it impossible to pay your medical bills, try to reach out to the hospital or doctor to negotiate. You can also take the help of experts to manage your finance in a better way. If nothing works, consider Chapter 13 bankruptcy if your income status allows it. Otherwise, you will be left with no other choice except Chapter 7 bankruptcy.