A Complete Guide to Medical Bankruptcies - Debt 911
It is the quintessential American nightmare when you are stuck with debts, but especially if you have an ongoing illness and your medical bills is racking up exponentially, and you don’t know what to do. This is the case if you have health insurance or not.
Millions of Americans each year end up buried in medical bills, forcing some to file for bankruptcy. In fact, medical debt is the leading cause of bankruptcy in the United States.
When it comes to personal bankruptcy, many people assume that it is caused by the excessive use of credit cards or expensive mortgages. The estimated number of households that filed for bankruptcy this year due to medical bills might be slightly less than in previous years. However, the problem continues to affect 11 million people who will create more credit card debt by paying medical bills with high-interest rate cards. Another 15 million will empty their savings accounts in an effort to pay for medical expenses. This will leave another 10 million unable to pay basic expenses.
The Statistics
Statistics show that three out of five bankruptcy cases are filed due to overwhelming medical bills. Oftentimes, to avoid losing some type of real estate, taxpayers will file for Chapter 13 bankruptcy. This topic may be of interest to those suffering from the lingering effects of the recession. While it can help, the Affordable Care Act will not totally solve the problem.
More people will have coverage, but the average family in the United States makes about $50,000. Companies are increasingly turning to high deductible insurance plans with maximum outlays that can be as high as $10,000. Such a high deductible is often unmanageable for middle-income households.
How Common is Medical Debt Bankruptcy?
Medical bankruptcies due to medical bills are very common in the United States, and it is more than they should be. In the United States, the main source of bankruptcy on a personal level is medical expenses. The issue of the frequency of bankruptcies due to medical debts is relevant in the United States. It often becomes an election campaign issue, since politicians know that it is a sensitive issue that affects many people.
Just to give you an idea, in the United States, 79 million people have problems paying their medical bills or paying medical debts. Many of these are at levels set by the federal poverty table, which is used to grant aid for Obamacare. Furthermore, two studies in 2021 showed that more than half a billion people were pushed or pushed further into extreme poverty due to health care costs.
Can medical debts be discharged by filing for bankruptcy? The short answer is yes, although each case is unique. So to get rid of medical debts, many times people choose to file for bankruptcy.
Debt Obligations
When you think of medical bankruptcy, it is not really to be considered an official bankruptcy category per se. However, you can file bankruptcy, if your medical bills have become overwhelming. This means that you probably will not be able to choose the specific debts for inclusion in your bankruptcy filing. If you are going to file a Chapter 7 or a Chapter 13 bankruptcy for medical debt, this is just one category for calculating debt obligations in totality. The process may also impact other outstanding debts related to credit cards and your mortgage. This can prevent you from remaining in your home.
For that reason, it is very important that you are aware of the dilemma you are getting yourself into when you file for medical bankruptcy. It is essential that you have a clear view of what both Chapter 7 and 13 entail and the entire process.
The Legal Process
Medical debt bankruptcy is a legal process in which an individual declares that they cannot cope with medical bills and seeks some form of reprieve or solution to this problem. Bankruptcy due to debts with hospitals occurs mainly in people who do not have health insurance to support them, and for life reasons, they have to face expensive financial commitments.
Filing for bankruptcy is not easy, it is necessary to meet certain requirements and it can damage both your finances and your self-esteem. Still, there are many people who face the dilemma of whether or not they should file for bankruptcy when astronomical medical bills hit them, and they find that they cannot cope without help.
The Illness
Depending on what illness or medical procedure a person undergoes, they can accumulate bills with clinics, doctor’s offices or hospitals. This can even happen if you have some very inexpensive health insurance, but it is limited. In addition, you add a serious health situation and it can lead to the loss of work and income. The economic situation, then becomes unsustainable. Bankruptcy can help you discharge medical debts in such cases.
There are two bankruptcy options: Chapter 7 and Chapter 13. The two types of medical bankruptcies work differently, and the option that works for one person may not work for another.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the simplest and fastest form of protection against financial insolvency and can lead to 100% discharge of many types of unsecured debt, including medical bills. On the other hand, the bankruptcy described in Chapter 13 of the law can provide a solution for those people who cannot make use of the Chapter 7 article.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to put unsecured debts, such as hospital bills, into a payment plan for a period of three to five years. Chapter 13 bankruptcy filings are often used when people do not qualify for a Chapter 7 filing that completely erases most unsecured debt as soon as the case is resolved. Chapter 13 is a long-term plan that allows the taxpayer to pay a percentage of their debt based on an income formula. Payments are made to a bankruptcy trustee over a period of three to five years. A bankruptcy attorney can help those experiencing financial difficulties by reviewing the situation and explaining which parts of the Bankruptcy Code can help them.
Discharges and Releases
When you file Chapter 7 bankruptcy, it discharges all the debts listed. You will be released from your responsibility or financial obligations to the creditors of your outstanding medical bills. You will be allowed to have an unlimited amount of your medical bills discharged as long as they are listed in the bankruptcy upon filing.
Let’s take a close look at this:
If you have a medical bill, which is outstanding and has gone to a creditor, it can be listed in the Chapter 7 bankruptcy, even if it is your medical bills that you charged using a credit card. You will be provided immediate relief from debt collectors when you file this type of bankruptcy. What does this mean? It means that no debt collector can contact you or try to collect any of the outstanding debt from you. Bankruptcy halts any processes associated with the collection of your outstanding medical bills. Chapter 7 is usually a fairly fast resolution of taking care of your outstanding medical bills that have run you into debt. The reason is that the process only takes up to four months from the date that you filed it to the date that it is discharged. You could be freed of those unpaid medical bills in less time than it would take to pay them back.
Impact On Your Assets
Filing medical bankruptcies have an effect on your assets in some cases. This is especially true when you file Chapter 13 since it could jeopardize your living conditions and you could possibly lose your home as well as other assets.
Of course, the law is different in each state. Your property could be sold so that the credits are repaid what you owe them. It also could affect your non-medical debts such as personal loans and credit cards. If you did not want to include your credit card, for example, but want to continue to use other credit, this could negatively impact you.
Your Credit Score
After the discharge, your credit will be affected for up to ten years, even after it is discharged. Your credit scores will be affected in a negative way and while you may be able to acquire credit, your interest rates will be much higher. In addition, your credit scores will be reduced over time.
The Consequences
As you can see, a few of the consequences in filing Chapter 7 appear to be the same as filing Chapter 13. For both, your credit will be negatively affected. However, Chapter 13 does not last as long as Chapter 7 does and so you will be able to repair your credit sooner rather than wait seven to ten years.
If your medical bills go unpaid, it can go on your credit report as negative. You have 180 days to pay those bills before it becomes your medical debt on credit report. However, if they finally get on your credit report, it could stay there for as many as seven years or until it has been resolved.
Receiving Medical Care
Bear in mind that filing of Chapter 7 bankruptcy could be detrimental to the relationship that you have with your primary physician. It could make it a lot more difficult for you to receive medical treatment.
By law, if you were to go to the hospital emergency room, you would have to receive care, regardless of the fact that you filed bankruptcy or not able to pay. However, when it comes to a private doctor, you could be denied medical care because of the unpaid bills you included with your bankruptcy.
For this reason, some people choose to pay their outstanding medical bills, even after they file bankruptcy because of the need to maintain their doctor/patient relationship.
The Payment Plan
With Chapter 13 bankruptcy, you will be able to set up a payment plan to pay off the outstanding medical bills. You would be given a three to five year period. This would be a monthly payment plan and it would be based on what you can afford. If not paid, your wages could be garnished. Let’s say you had an underlying illness and you have new medical bills in addition to the ones in the Chapter 13 payment plan. This could really put a huge dent into your regular income source. If your existing medical condition were not ongoing, then this type of bankruptcy would be the ideal option for you. During the period of repayment, your disposable income would have to be paid toward your medical debt. If you don’t follow the repayment plan, you could lose assets and even your paycheck. It is similar to the way child support obligations are handled. If you follow the plan, at the end of the repayment period, the remaining balance could be discharged.
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The Other Choices
You do have other options than filing bankruptcy as a relief for your medical debt. These options prevent you from suffering the consequences. Using these options will help you pay off your medical debt and get back to being fiscally responsible.
Charity Care
First, you could negotiate with your primary care physician or the hospital, if you can’t pay the outstanding medical bills. Call the doctor’s office or hospital and speak to someone, explaining your dire financial situation. Ask for a payment plan. Many doctors will try to facilitate you, especially, if they know that you don’t have health insurance. When you work with health care providers directly, it helps to temper the situation and maintain the client relationship.
You could put the medical bill balance on a credit card, but bear in mind that you will be accruing interest. In some cases, the hospital might even have opportunities for you to receive financial assistance. This is popularly known as charity care.
Credit Counseling
You could also opt for credit counseling, which is another viable way to take care of your outstanding medical bills. A credit counselor can advise you on how to keep a close watch on your finances and budget and likely, you will have to be placed on a debt management plan where the credit counselors will be the intermediate or liaison in speaking with the creditors on your behalf.
Bear in mind that this is not similar to a debt settlement, which comes with a cost. This could create other issues if you are already struggling with your finances. In any event, when you do file bankruptcy, you have to go through credit counseling anyway. However, it has to be done by an approved agency.
Do Not Ignore Medical Bills!
Are you getting such high medical bills for whatever reasons? Find out why an insurance claim is not being processed. Was it denied or not authorized? Did you use an out-of-network provider? Were you billed incorrectly? You could also have the wrong diagnostic code and/or procedure code.
You could have your medical bills reviewed by a professional to see if that helps you toward solving the medical debt. People ignore bills and when you go to collections, you are not helping yourself.
It is easier to negotiate with a medical provider than with a collection agency. Challenge invoices that appear incorrect, but be sure to answer them.
If they are accurate, try to set up a payment plan so that you are not listed as someone who is not credit-sensitive or fiscally responsible.
Conclusion
If you are considering bankruptcy as a solution to medical debt, you are not alone. Unmanageable health care debt and the difficulties that often accompany it, such as job loss or reduced access to credit can be a recipe for financial ruin. There is nothing wrong with filing medical bankruptcy, but if you can avoid it, then that is what you should try to do at all costs. This could be a way to relieve you from your medical expenses and it does not matter which bankruptcy category you file in, but when choosing, you have to think about whether you want to hold onto your assets or not. It is best to consult with a bankruptcy attorney who specializes in medical debts and both Chapter 7 and Chapter 13 bankruptcies.
If you want more information about medical debt bankruptcy, it is recommended that you check out the Goalry online platform and go to the Debtry store for more information, action plans, recommendations, and advice.