Can I File a Medical Bankruptcy?

There are many reasons why a person might need to file a Chapter 7 or a Chapter 13 bankruptcy case. One common reason to file for bankruptcy relief is the need to get rid of medical bills. Whether it is because of an accident or illness, the cost of medical care can quickly become overwhelming for an individual or couple. Even a “minor” outpatient procedure can cost thousands of dollars.

If you are struggling with medical debts you cannot pay, filing a bankruptcy case may be the best option to get rid of medical debts. Our law firm offers free consultations so that you can learn more about how a bankruptcy can help you recover from excessive medical bills.

What is a Medical Bankruptcy?

There is no such thing as a medical bankruptcy under the Bankruptcy Code. The term “medical bankruptcy” has been misused on the internet to describe a person who files for bankruptcy primarily for medical debts. The term was misinterpreted to mean that a person could file a Chapter 7 case and only list medical bills as the debts to be discharged.

While you can file bankruptcy to get rid of medical bills, you cannot file a bankruptcy case just to eliminate your medical debts. When you file a Chapter 7 or a Chapter 13 case, you must list all debts in your schedules. Intentionally failing to list a debt could be construed as fraud. Therefore, you must list any mortgages, car loans, credit cards, personal loans, finance companies, taxes, student loans, and all other debts in addition to your medical bills.

How Are Medical Bills Discharged in Bankruptcy?

Medical bills are unsecured debts. An unsecured creditor is a creditor who does not have a lien on collateral. For instance, a mortgage company is a secured creditor because the company has a lien on real estate to secure the debt. Another example of a secured creditor is a lender who holds a lien on your vehicle. Medical providers do not hold liens on collateral; therefore, the debts are unsecured. Other examples of unsecured debts include credit cards, old utility bills, cash advance loans, and most personal loans.

When you file a Chapter 7 bankruptcy case, your unsecured debt is discharged. When a debt is discharged in bankruptcy, you are no longer legally liable for repaying the debt. Medical bills are discharged in bankruptcy. Some unsecured debts, such as student loans and some taxes, are not eligible for a discharge.

Medical bills and other unsecured debts can also be discharged in a Chapter 13 bankruptcy case. When you file under Chapter 13, you must propose a plan of reorganization. Your bankruptcy plan proposes to pay a certain percentage of your unsecured debt. For example, your plan may propose that unsecured creditors receive 20 percent. If your plan is confirmed, unsecured creditors who file a valid proof of claim can receive 20 cents on the dollar.

The remaining balance owed on the accounts when you complete your plan is discharged, except for a few debts that are ineligible for discharge such as student loans. Just as with a Chapter 7 case, you are not legally liable for any debts discharged in your Chapter 13 case.

How Does Discharging Unsecured Debt Benefit Me?

Bankruptcy is designed to give debtors a fresh start, free from the restraints of debts they cannot pay. By getting rid of debt, you can begin to rebuild your finances. For example, you can start saving money for emergencies and your children’s education. You are able to put away money for your retirement. After bankruptcy, you can begin improving your credit score by making secured debt payments on time and using credit wisely in the future.

Ignoring a debt problem does not resolve the problem.  In many cases, ignoring medical bills and other debts you cannot pay can result in lawsuits, garnishments, foreclosures, and repossessions. Instead of allowing your creditors to be in charge of determining your future, you need to take steps to deal with the debts so that you can have a brighter and more secure financial future.

Are You Ready to Learn More About Filing for Bankruptcy Relief?

If you have questions about bankruptcy or you have debts you cannot pay, our team of legal professionals is here to help you. We understand how stressful and frustrating it can be to try to deal with bills you cannot pay. We also understand the fear you may have about losing a home or vehicle.

 

Chapter 13 Bankruptcy can help with student loans in many ways.  For starters, it can be a financing plan for repaying your student loans on your terms.  There is no more garnishment or aggressive collection tactics.  You pay what you can, when you can.  The Federal Bankruptcy Court tells the creditor how much is acceptable.  There is no negotiation and no garnishment of 25% of your gross wages.