Can My Medical Debt Be Paid Off With Bankruptcy?
Do not beat yourself up thinking of how to make ends meet in the midst of mounting medical bills. You are not alone. Personal bankruptcy is largely driven by unexpected causes, like medical debt. Monstrous medical bills are the biggest driver of personal bankruptcies in the US. In fact, 66.5% of all bankruptcies are related to medical issues, either because of expensive medical bills or time away from work, CNBC cited a study by the American Journal of Public Health. The study looked at court filings for a random sample of 910 Americans who filed for personal bankruptcy between 2013 and 2016, and found that 530,000 families file for bankruptcy every year for medical issues or bills. The rising health care costs in the country contributes to one of the biggest expenses Americans have to pay. According to CNBC, Americans spent $3.4 trillion on medical care in 2017. With the average healthcare cost per person reaching $10,345 in 2016, experts predict that figure will increase to $14,944 in 2023.
According to the study, other reasons for personal bankruptcy include unaffordable mortgages or foreclosure (45%), spending or living beyond one’s means (44.4%), providing help to friends or relatives (28.4%), student loans (25.4%), and divorce or separation (24.4%).
Medical conditions like diabetes and heart disease are rising which leads to many people contending with staggering medical bills. For other people, the special medical needs of a sick loved one can also put a strain on one’s finances. Hospice care for retirees and senior citizens can also be a burden and can take a big chunk out of retirement savings. Not to mention the financial obligations of keeping up with car loans and mortgage payments.
It may seem that the financial struggles you are facing are endless and you are bothered by this question: Is filing bankruptcy the best option for me to pay off my medical bills?
The answer is a resounding, Yes! Bankruptcy protection can cover medical bills and similar debts accrued from medical care. When you file for bankruptcy, the bankruptcy court jumpstarts an automatic stay to stop your creditors from initiating all collection activities against you. This, in turn, also puts a stop to undue stress caused by debt collectors hounding you to pay your debts. Another advantage of declaring bankruptcy is that you can save your home because bankruptcy freezes foreclosure actions.
Dealing with Medical Debt Through Filing Bankruptcy
Bankruptcy has several chapters. Some help businesses, others aim to help individuals. However, there is not a personal bankruptcy specifically for medical debt. Unlike priority debts such as tax obligations and student loans which are usually not discharged in bankruptcy, medical debt is categorized as unsecured debt. Unsecured debts include credit card debt, old utility bills, personal loans, and cash borrowed from friends and relatives. All these debts are treated the same way under the bankruptcy code. As such, if you intend to file a bankruptcy case in order to have your medical debt discharged, you need to bear in mind that all your other unsecured debts will be wiped out too.
Information Needed for Disclosure
When disclosing information to your bankruptcy attorney, you need to be honest about anything related to your financial state. Bankruptcy laws intend to be fair to all concerned, whether debtors or creditors. As such, when you fill out your bankruptcy petition, you need to list down all your debts, property, and real estate. It is also imperative that you declare crucial financial information such as income and expenses, assets and debts, and property transfers. It is also necessary to provide supporting documents to the bankruptcy trustee to prove that the information you disclose is accurate. Any false declaration or misinformation may put your bankruptcy case in jeopardy and result in dismissal.
As mentioned, there are several bankruptcy chapters with which your medical debt, as unsecured debt, can be wiped out.
Types of Personal Bankruptcies
There are two ways people can eliminate debt: by filing for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy.
Chapter 7 is the most basic type of bankruptcy. It involves liquidation of assets, allowing the debtor to wipe out debts and get a completely fresh start. The bankruptcy trustee collects all of your assets and sells any assets which are not exempt. While it takes care of most unsecured debts, including medical debt and credit card debt, not all debts in a bankruptcy case are dischargeable. Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged. In some cases, students loans may be discharged but only if “undue hardship” has been proven.
However, not everybody can file a Chapter 7 bankruptcy. In New Jersey, Chapter 7 bankruptcy is suited for debtors with little or no assets with which to pay off their debts. To qualify, your family income and expenses will be subjected to something called the “means test.” If your income is higher, your best option is to file a Chapter 13 bankruptcy.
If you didn’t have the financial resources to start with, a Chapter 7 bankruptcy maybe your best option. Once you have complied with all the requirements of a Chapter 7 bankruptcy, your remaining medical bills will normally be discharged.
Chapter 13 bankruptcy works for individuals who make too much money to qualify for Chapter 7 bankruptcy, or for those who would stand to lose property that they prefer to keep. Chapter 13 bankruptcy is used to be called a wage earner plan because debt relief under it was only available to individuals who have a regular source of income. Under a Chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtor’s future income. Your payment plan will be based on the debts you have and your disposable income. You can use Chapter 13 to prevent a house foreclosure; makeup missed car or mortgage payments; pay back taxes; stop interest from accruing on your tax debt (local, New Jersey state, or federal); keep valuable non-exempt property.
If you have enough money to pay the usual bills, but cannot afford to settle your medical debt, Chapter 13 bankruptcy’s repayment plan will work for you to work out a schedule of payments for your debts, depending on your income.
Regardless of the option you take, it may be assuring to know that you may have your medical debt discharged since it is classified as unsecured debt. The best gauge on choosing between Chapter 7 or Chapter 13 is how much assets, cash or otherwise, you are able to part with.
Mandatory Credit Counselling
All individuals filing for bankruptcy must take up two mandatory courses before receiving debt relief: a credit counseling course and a debtor education course. The first course, credit counseling, is taken before you file for bankruptcy and helps you assess if bankruptcy is the right option for you. The second course – the post-filing debtor education course (or “second” class) is taken after you file your bankruptcy. This course will provide you with tools to manage your finances after your bankruptcy is over.
Best Time to File for Bankruptcy For Medical Debt
There is no “perfect” time, but there is a good rule of thumb to keep in mind when you’re asking yourself the question: When should I file for bankruptcy?
When you file for bankruptcy here in New Jersey, you can be assured that all qualifying debt at the time of the filing will be included in your discharge or repayment plan. As such, it important that you take into account whether or not there are other expected huge bills that could disrupt your filing. Note that after you file your bankruptcy petition, all other incoming medical bills will no longer be included for possible discharge or repayment and you will need to take full responsibility in paying for them.
Needless to say, timing is of utmost importance and careful planning is necessary to make sure that any huge amount of debt that you can reasonably project to accrue in the future is considered. A prognosis about the medical condition of a loved one is one way to know if any there are looming costly medical procedure that may be charged to you. In such cases, it will be best to wait for the procedure to be over and done with before you file for bankruptcy.
It may seem unrealistic to wait for the perfect time to file when you are already undergoing so much stress because of your financial situation. Keep in mind that, it is worth the wait, knowing that you are sure to include all debt in your bankruptcy petition. Otherwise, you are left to contend with unfiled debts because there are strict rules on when you can seek another discharge through bankruptcy. Before you can file for bankruptcy a second time, there are specific waiting periods. For a Chapter 7 bankruptcy, you would need to wait another eight years before you can file again. If you filed for a Chapter 13 bankruptcy, your waiting period would be four years.
Unfortunate circumstances such as loss of a job or grave illness are not reasons enough to lose hope. The debt that follows in their heels may seem unfathomable but there is always a silver lining. Bankruptcy may help in providing debt relief. All you need to do is make sure you get in touch with legal professionals who can advise you on the next step to financial freedom. Karina Lucid is one of the best bankruptcy attorneys in New Jersey. You are encouraged to ask questions and to present your case so that viable solutions may be drawn to address your financial situation. Call us Karina Lucid for a free initial consultation.