Bankruptcies due to unpaid medical expenses will affect nearly two million people this year, reports CNBC. As a result, healthcare is now the top cause of such filings, outpacing bankruptcies due to unpaid mortgages and credit card bills. The rising cost of healthcare, combined with inadequate insurance coverage, has led many Americans to file for bankruptcy, hoping to eliminate their medical debts.
It is important to recognize the different chapters of the bankruptcy code available for most consumers to address their medical debts. At Barski Law Firm PLC, we help you understand your options better. We break down the key differences between the treatment of medical debt in Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the ideal option if you have large amounts of medical debt and few non-exempt assets. You need not have a lot of creditors to file this type of bankruptcy. In fact, many Chapter 7 debtors file on a single but substantial debt. Chapter 7 debtors with large medical debts are typically not subject to the means test because medical debts are considered non-consumer debts, which means that even higher income earners can qualify for Chapter 7 bankruptcy.
Chapter 7 bankruptcy treats medical debt as a non-priority unsecured debt. This means the court will not prioritize your medical debts unless the trustee makes a payment to your creditors. Once they pay a portion of your expenses, the court will wipe out the remainder of the amount when you receive your discharge.
How It Works
Chapter 7 debtors must meet a few federal bankruptcy requirements. In most cases, the court will require debtors to complete mandatory pre-bankruptcy credit counseling.
Once you complete all the requirements, you can file your bankruptcy paperwork with help from a trusted bankruptcy lawyer. The court will require you to submit the following:
- Petition for bankruptcy
- Supporting documents that outline assets, income, debts, and other financial details
If the court agrees to proceed, they will assign a trustee to the case. The trustee’s job is to examine your non-exempt assets and sell your property to your creditors to repay your debts. You can still keep most or all of your properties with proper utilization of bankruptcy exemptions. Debtors usually receive a discharge within 120 days of filing and remaining debts, including medical debt, will be eliminated or discharged.
Chapter 13 Bankruptcy
You don’t risk liquidating your assets when you file for a Chapter 13 bankruptcy. There is, however, a catch: you are subject to a repayment plan that uses your disposable income to pay for your debts.
Since Chapter 13 treats medical debts as unsecured debts, it requires debtors to pay a certain percentage of what they owe through their repayment plan. The amount will depend on two factors:
- Amount of disposable income based upon a reasonable budget; and
- The value of your non-exempt assets.
How It Works
Similar to Chapter 7, Chapter 13 requires debtors to comply with all bankruptcy requirements. Additionally, you must also satisfy the terms of the court’s reorganization plan.
Once you’ve completed all of these, you will receive a grant of discharge from the court. Chapter 13 considers medical debts as dischargeable, which means that upon the completion of your plan, the court will erase all outstanding medical debt. Post-petition medical debts cannot be discharged unless the Debtor converts to a Chapter 7 proceeding. This is always an option if medical issues persist in the Chapter 13 process.
If you are struggling with medical debts, consider filing for Chapter 13 or Chapter 7 bankruptcy. Apart from reducing or eliminating your bills, bankruptcy also helps you keep your property, get more time to pay off debts or loans, and avoid utility shut-offs.
Take that first step towards debt relief by talking to Barski Law Firm PLC today. Call us at (602) 441-4700 for a free consultation.