Did you know as high as 62% of bankruptcies are due to medical debt? When filing for bankruptcy, the court will ask you to write a list of your debts. While debts mainly include credit card loans, utility bills, and personal loans, it also includes medical expenses in most cases.
What Is Medical Bankruptcy?
Firstly, one of the most important things to understand is that you can file bankruptcy on medical bills.
When thinking about consumer debt and bankruptcy, the easiest conclusion is that people become bankrupt because they spend more than they can afford on luxurious items or have poor financial habits. However, medical debt is among the leading causes of bankruptcy.
While medical bankruptcy is not an acceptable term, medical hardship is a common cause of bankruptcy. Unfortunately, only a few people know that filing for medical bankruptcy doesn’t limit your case to outstanding medical bills.
Medical debts are considered unsecured debts. Therefore, they fall under the same category as personal loans, credit card debt, and overdue utility bills. So, when you file for medical bankruptcy, your unsecured debts will also be considered.
If you’re wondering “Should I File For Bankruptcy?” there are resources you can use to figure out if the option is right for you.
Chapter 7 or Chapter 13 Bankruptcy
We keep emphasizing the importance of understanding debt-relief options before filing bankruptcy. Always look into other debt-relief options, and compare their costs, advantages, and disadvantages. You can consider debt settlement, debt management, debt payoff planning, and Chapter 7 bankruptcy.
When you read first, you can make an informed decision based on a deeper understanding of each alternative. You can use a Chapter 13 bankruptcy calculator to help you compare these options.
It will also provide a Chapter 13 payment plan example to help you understand how the cost works.
Answers to Three Common Questions on Medical Bankruptcy
Unfortunately, health insurance coverage isn’t a guarantee against bankruptcy. People who sink into debt due to medical reasons understand this when it’s already too late. In most cases, health insurance merely offers partial protection despite the high premiums.
Most people who declare bankruptcy due to medical reasons claim the insurance deductibles failed to cover the comprehensive medical emergency expenses. Thus, the partial protection leaves individuals with exorbitant bills that income solely cannot cover. Sadly, the continued medical expenses don’t help the situation.
1. Can I Continue Getting Treatment After Filing Medical Bankruptcy?
If you have been reading about the consequences of filing for bankruptcy, you know one of the challenges is difficulty renting or getting credit. So, your concern on whether your doctor will continue treating you after filing medical bankruptcy is valid.
Once the court accepts your petition and grants a discharge order after filing medical bankruptcy, your liability to pay for medical debt is lifted immediately. Therefore, the doctor and hospital are restricted from requesting payment for the debt or taking any collective measures to recover the debt.
While hospitals deny patients services after failing to pay the medical debt, they are obliged to property and legally terminate the doctor-patient relationship. Therefore, your doctor will need to set a strategy for future care, failure to which you can take legal and ethical action against them, including filing abandonment charges.
Your doctor can only terminate the relationship after submitting a notice of termination. However, the doctor cannot refuse to attend to you should you need emergency medical attention. If your doctor is open to continuing treating you, or if you prefer maintaining your doctor-patient relationship, the doctor can set up a payment plan even after you receive a bankruptcy discharge.
2. Can Hospitals Pursue Unpaid Medical Debts, and How?
Like any other creditor, the hospital will try different ways to pursue you for unpaid medical debts. However, their means are different from those of credit card creditors. A common way hospitals pursue debt is through the internal collection department. If this strategy fails, the hospital is likely to turn to the courts,
The court system offers the highest chance of the hospital collecting money as they will plead they need the funds to help the health system remain afloat. A second option the hospital can take is selling patient debts.
There are debt buyers, usually collection agencies which pay medical facilities pennies for every dollar of debt. Once the debt buyer buys your debt, they aim to recover it by pursuing you and collecting more from you. Hospitals prefer selling their patient debts to avoid being caught up in the aggressive tactics used by debt collectors.
3. Will Filing Medical Bankruptcy Eliminate All My Outstanding Medical Debt?
The court will separate your debts into priority or non-priority debts like other bankruptcy cases once you file for medical bankruptcy. The court cannot discharge priority debts like overdue taxes. However, since medical debts are considered unsecured, they are non-priority debts, and the court might eliminate them.
How Bankruptcy Can Help Eliminate Medical Bills
If you have a lot of medical debt, you can file either Chapter 7 or 13 bankruptcy to eliminate outstanding medical bills. The best option between the two chapters depends on your case, eligibility, and what you think is best.
Chapter 7 Bankruptcy
To qualify to file for Chapter 7 bankruptcy, your disposable income should be lower than the State median to pass the Chapter 7 test. If you are eligible, filing for Chapter 7 bankruptcy can grant you debt discharge and eliminate your medical bills alongside other unsecured debts. Under Chapter 7 bankruptcy, there is no limit on how much medical debt the court can discharge. If you also used your credit card to pay medical debts, the amount will also be discharged with the credit card debts.
Chapter 13 Bankruptcy
If you don’t qualify to file Chapter 7 bankruptcy, you can always file Chapter 13 bankruptcy. Under this Chapter, your medical bills are also considered unsecured debts. The amount you will repay will depend on your income, expenses, and non-exempt assets. Under the Chapter 13 bankruptcy repayment plan, all creditors will receive part of the total figure. However, there are debt limits, and your medical bills and their debts should not be more than the debt limits,
Alternative Debt Relief Options to Medical Bankruptcy
Other than bankruptcy, there are other debt-relief options that can help you get rid of your medical debt. Each option offers a unique set of advantages and disadvantages. Sometimes, people may have a bad experience with debt relief. Doing research on each option may help you figure out what is best for you. Here is a brief but comprehensive overview of three alternative options;
If you only have unsecured debts like medical bills and credit card debts used in paying medical expenses, debt management can be a favorable approach. Debt management companies work with your creditors to negotiate reduced monthly payments and interest rates on your outstanding debts.
The companies also advocate reducing penalties and adopting waivers, which reduce the amount you should pay. Under debt management, you and your creditor can agree on a payment plan that could run for between 3 and five years. However, before trying a medical debt management plan, consult a credit counselor to ensure you are making the right decision.
If you barely have enough to pay your medical bills, you might want to consider debt settlement. Debt settlement offers you a chance to pay less than you owe by contacting a debt settlement company to negotiate with the hospital or your doctor on your behalf.
The negotiations might go well, and your doctor and the hospital might agree to allow you to pay a lesser amount than your total debt. Try beginning the debt settlement company before the medical institution turns your debt to a collection agency for a positive outcome.
If you are planning on working with a debt relief company, like Turbo Debt, be sure to thoroughly research their customer reviews.
Debt Payoff Planning
If you prefer to increase your income or reduce your expenses to repay your debt over filing bankruptcy, you should consider debt payoff planning. There are two methods under debt payoff planning- the avalanche and snowball payoff methods.
If you are being pursued by debt collectors and contacted incessantly, there is an 11 word phrase to stop debt collectors. Unfortunately, this doesn’t eliminate your debt. Because of this, you’ll need to consider your other debt-relief options. Here is everything you should know about medical bankruptcy.
Now that you understand medical bankruptcy better, you can decide if filing bankruptcy is the best option, and thankfully in many cases you may not lose your home. You can try the other three debt-relief options and begin your journey to a debt-free life today!