It is estimated that 70 percent of all bankruptcy filings are caused in large part to overwhelming medical debt. Medical debt is one of the most unique forms of debt because it originates from circumstances that are often unavoidable such as an accident or sudden illness. In many cases the illness or injury has two damaging effects (1) a large hospital or doctor’s bills and (2) it often prevents the injured or sick person from working, reducing their earning power, and their ability to pay back the debt. Dealing with medical debt through bankruptcy is often an easier process for eliminating medical debt than negotiations.
Dealing With Medical Debt Through Bankruptcy
Medical Debt and Chapter 7
The majority of people filing for bankruptcy to eliminate medical debt are covered by a health care insurance agency. However, the unfortunate fact is that health coverage providers often find loopholes in their coverage plans that leave them free of the responsibility of paying and put the financial burden on the individual. Prior to the Affordable Care Act, these loopholes were even worse leaving people plagued by bills from treatment they had no choice but to receive
For those with an income less than the median income of the state, a Chapter 7 bankruptcy is often the solution. Filing a Chapter 7 bankruptcy liquidates non-exempt assets and discharges all unsecured debts, like medical bills. The benefits of a Chapter 7 are that it is a quicker path to medical debt relief, but it does come with some drawbacks. The first is property exemption, which applies differently to everyone so be sure to work with a Houston bankruptcy lawyer to ensure the most protection for your property. Second, the rules of filing a second Chapter 7 state that you must wait eight years to file again. So if you are undergoing continued treatment, your medical debt will continue to pile up again, and your financial situation could be limited in improvement.
Medical Debt and Chapter 13
Filing a Chapter 13 bankruptcy can reorganize your debts and allow you to pay them down over time. Because medical debt is not a priority debt like a mortgage, car loan, or other secured loan, chances are much of what is owed to a medical provider is likely to be eliminated over the course of your payment plan. Chapter 13 bankruptcy can offer better asset protection and may not have a limiting effect of financial gain as a Chapter 7 bankruptcy. As always, the best first course of action is always to consult your Houston bankruptcy lawyer, who will guide you to the solution that’s right for you.