Medical emergencies can occur without warning, leaving you injured and out of work. And when your medical bills keep piling up, debt can quickly get out of control. But can you file bankruptcy on medical bills?
What Happens When You Have Outstanding Medical Debt?
Any outstanding medical debt you hold will go immediately to collections. You can then expect phone call after phone call until you repay that debt. In addition, the primary creditor can take several debt collection actions against you, such as:
- Property liens,
- Wage garnishment, and
- Bank account levies.
Basically, they can try to take your money by force. Fortunately, filing for bankruptcy can help put a stop to these creditor actions.
How Does the Bankruptcy Court Treat Medical Debt?
Like credit card debt, medical debt is treated as unsecured debt in bankruptcy, meaning that it is not backed by an actual property or asset, like your mortgage or car loan. Because of this, medical bills aren’t given special priority and can be discharged through bankruptcy.
When filing for bankruptcy, you generally have two options: Chapter 7 or Chapter 13. While both bankruptcies offer the ability to eliminate medical debt, there are some key differences to keep in mind.
Eliminating Your Medical Debt Through Chapter 7 Bankruptcy
Chapter 7 is the most common type of bankruptcy, also known as liquidation bankruptcy. Through the process of Chapter 7, your most valuable property and assets are turned over to a bankruptcy estate. The estate then liquidates those assets in order to repay part of your debts. You can, however, protect certain assets up to a specified value amount.
Eliminating Your Medical Debt Through Chapter 13 Bankruptcy
Chapter 13 is the more complicated chapter, also known as reorganization bankruptcy. Through the process of Chapter 13, your debts are consolidated into a monthly payment plan. The actual amount you will pay each month is determined by your income and expenses. Expect to continue to make your monthly payments for a span of three to five years. Once your plan expires, any remaining debt will then be discharged.
What Are the Filing Requirements for Chapter 7 and Chapter 13?
Before deciding which bankruptcy to file, you must first understand the different filing requirements for either type.
Qualifying for Chapter 7 requires possessing less income than your state’s median. If your income is below the average, then you will automatically qualify for Chapter 7. However, for people who make above the average, then you will need to take and pass the means test. This test will compare your financial obligations to your income. If the test determines you possess enough disposable income to pay off a portion of your debt, then you may want to consider filing for Chapter 13 instead.
The limits of Chapter 13 rely mainly on the amount of money that you owe. As of April 2019, you can still qualify for Chapter 13 if the amount of unsecured debt you owe is under $419,275.
Can you file bankruptcy on medical bills if your income is too high for Chapter 7 and you owe too much for Chapter 13? Yes, you still have options. However, you may need to file bankruptcy under Chapter 11 instead.
Which Chapter Should You File?
While both types of bankruptcies offer a chance to discharge your debt, there are some other aspects to consider as well.
Most people tend to file for Chapter 7, since it’s the quickest and easiest way to regain control of your finances. Chapter 13 is typically more expensive and time-consuming. But it’s important to understand that Chapter 7 bankruptcy will negatively affect your credit score more than Chapter 13 will. In addition, bankruptcy under Chapter 7 will stay on your credit report for ten years, whereas bankruptcy under Chapter 13 lasts for only seven.
Either way, whether you file for Chapter 7 or Chapter 13, you can start rebuilding your credit report right away.
Steadman Law Firm Can Help You Weigh Your Options
Can you file bankruptcy on medical bills? Yes. With the help of an experienced North Charleston SC bankruptcy attorney, you can eliminate medical debt and start the road to financial recovery. To learn more, contact Steadman Law Firm today.