Each year in the United States, approximately 1.5 million people file for bankruptcy, and the principal reason behind the majority of personal bankruptcy cases is medical debt. A recent study by Harvard University revealed that about 62 percent of people who go bankrupt have significant medical expenses, and nearly three-quarters of those overwhelmed by medical-related bills have some health insurance. If you or your family has significant medical debt, bankruptcy could provide relief from the constant stress of credit collectors and give you a fresh financial start.
Most Medical Debt is Unsecured Debt
Unlike a car loan or mortgage where the lender has the security of collateral, medical debt is considered unsecured debt, just like credit cards. That means that unless you have mortgaged your home to borrow money for medical care, the money owed to doctors, hospitals, dentists and rehabilitation services are not ‘priorities’ under bankruptcy laws.
Chapter 7 Medical Bills Bankruptcy
In Chapter 7 bankruptcy, most general, unsecured claims such as medical bills are fully dischargeable – that means the debt is ultimately canceled, and creditors can’t try to make a claim against you for unpaid bills for surgeries, clinic visits, or medications.
There is no limit to the size of the medical debt Chapter 7 bankruptcy proceedings can discharge. It’s important to understand that to file for Chapter 7 bankruptcy for medical debt, and you need to meet certain criteria that include a ‘means test’ and disposable income test. A good bankruptcy attorney can advise you of these tests.
Chapter 13 Medical Debt Bankruptcy
Unlike with a Chapter 7 medical debt bankruptcy, under a Chapter 13 Bankruptcy, the amount of these payments is based on your income, your household expenses, and your non-exempt assets.
Your medical creditors may receive a set portion of these Chapter 13 payments, and the payment plan will typically last for between 36 and 60 months. If you’ve successfully made all the payments required under your repayment plan, the remaining amount owing on your medical bills will be wiped out at the end of the repayment plan period.