You may be considering Chapter 7 bankruptcy to a coronavirus unemployment hardship and wondering whether you can file bankruptcy on medical bills.
Yes, you can often file for bankruptcy on medical bills. Medical bills fall under the unsecured debts category when filing for bankruptcy. Eliminating medical bills is one of the main reasons why people file for bankruptcy.
According to this study from August, 2019: ‘Prevalence and Correlates of Medical Financial Hardship in the USA,’ medical hardship is widespread in the US, especially in people without healthcare, and those aged 18 to 64. It may be in the top 5 reasons why someone files bankruptcy.
Nevertheless, if your only reason for choosing Chapter 13 bankruptcy or Chapter 7 is unpaid medical bills, then medical bankruptcy might not be a suitable debt relief option. As well as it is important to understand the policies Chapter13 and Chapter 7 have dependent on where you live, for instance; Filing Bankruptcy in Minnesota or Chapter 13 in Connecticut. Now, let’s delve deeper into bankruptcy and medical bills.
Bankruptcy and Medical Debts
Medical bills are often unsecured debt. Unsecured debts do not have collateral, and medical bills are in this category. Other unsecured debts include personal loans, credit card debts, and the majority of taxes, alimony, child support payments, and old utility bills.
Keep in mind that some unsecured debts don’t qualify for a discharge. Case in point: child support and alimony can’t be discharged by applying for bankruptcy. This also goes for the majority of taxes and student loans. Still, you can get medical bills discharged in a bankruptcy.
Filing Chapter 7 Bankruptcy to Get Rid of Medical Bills
The moment you apply for Chapter 7 bankruptcy, the majority of unsecured debts are discharged. Note that creditors don’t have the power to collect debts discharged in bankruptcy as the legal liability to settle the debt is eliminated. There may be notable differences in Chapter 7 bankruptcies from state to state. For instance, a Florida Chapter 7 bankruptcy may look different from an Indiana Chapter 7 bankruptcy, especially when it comes to income limit requirements. Make sure you recognize the differences depending on the state you live in. However, you will also have to pass the means test before being able to file for Chapter 7 bankruptcy.
Besides, the creditors can’t send collection correspondence, call you, inform on your neglected debt on your credit report, file a debt collection case, or any other steps to compel you to pay the debt.
In the United States, the majority of Chapter 7 cases fall under the no-asset Chapter 7 category. Such an example is where the debtor retains all their assets. A no-asset Chapter 7 case runs from four to six months.
Still, in some Chapter 7 bankruptcy cases, the person filing for bankruptcy relief (the debtor) could suffer the loss of property. This is after the Chapter 7 trustee disposes of the assets and uses the amount to settle the debtor’s unsecured debts.
So, before applying for a Chapter 7 case, find out if any of your assets can be disposed of in a bankruptcy case. Now, there are bankruptcy exemptions that safeguard part of your assets by being auctioned by the Chapter 7 trustee. For example, if you file a Michigan Chapter 7 bankruptcy, you may have different exemptions than someone who files bankruptcy in Alaska.
Regardless of these exemptions, in case you own considerable equity in your car, residence, or other personal property, keep away from filing for Chapter 7 because of medical bills. Additionally, it is important to think about what steps look like to buy a home after Chapter 7.
Chapter 13 Bankruptcy and Medical Bills
Let’s say a collection agency like Credence Resource Management or Midland Funding are pursuing you, but you cannot qualify for Chapter 7 bankruptcy. You can refer to a Chapter 13 bankruptcy as a repayment arrangement. You agree and sign up for a 36-60 month bankruptcy arrangement to repay your debts.
Usually, a Chapter 13 bankruptcy plan pays a tiny part of the amount owed to unsecured creditors. After being done with Chapter 13, all remaining monies owed to unsecured creditors are discharged as long as the debt qualifies for a bankruptcy discharge.
Consequently, if you have any medical bills, your creditors will get a part of the cash you owe them for the debts (medical). After you are done with the bankruptcy and get the discharge, legally, you can’t be compelled to repay the remaining money. You may be wondering how to handle back taxes in bankruptcy regardless of whether you are considering bankruptcy due to medical bills.
If you don’t meet the income criteria for Chapter 7, then you can opt for Chapter 13 bankruptcy.
Also, if you own assets that may be auctioned off in Chapter 7, you have defaulted in car or mortgage payments, or possess non-dischargeable debts (like taxes and alimony); Chapter 13 is an excellent option for you.
The drawback of Chapter 13 is the long period that you will be in the repayment plan. Usually, Chapter 13 arrangements run for five years. Additionally, if you have family with kids it is important to understand how chapter 13 helps child support areas.
Here is the worst part: In case you don’t complete the plan, you don’t get a discharge, and you will still owe all the debts you owed prior to filing for Chapter 13 bankruptcy.