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, an American Journal of Public Health study found 66.5% of all bankruptcies are related to medical issues. The cause of bankruptcy was expensive medical bills or absence from work. The study reviewed court filings for a random sample of 910 Americans who filed for bankruptcy between 2013 and 2016. They 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 the study, Americans spent $3.4 trillion on medical care in 2017. In 2016, the average healthcare cost per person was $10,345. Experts predict that figure will increase to $14,944 in 2023.
Also 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 seniors can also be a burden and 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 may ask yourself the following. 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. This stops creditors from all collection activities against you. Most importantly, it 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. Consequently, if you file bankruptcy to have your medical debt discharged, your other unsecured debts will also be wiped out.
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. Therefore, you need to list all of your debts, property, and real estate on your bankruptcy petition. It is also imperative that you declare crucial financial information including income and expenses, assets and debts, and property transfers. It is also necessary to provide supporting documents to the bankruptcy trustee to prove the accuracy of the information. Any false declaration or misinformation may put your bankruptcy case in jeopardy and result in dismissal.
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, not all debts in a bankruptcy case are dischargeable. In a Chapter 7 bankruptcy, alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged cannot be discharged. 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 suits debtors with little or no assets to pay off their debts. To qualify, your family income and expenses will be subjected to 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. It is also for those who would stand to lose property that they prefer to keep. Chapter 13 bankruptcy used to be called a “wage earner plan” because debt relief under it was only available to individuals with a regular source of income. Under a Chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors. This plan offers 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, your medical debt can be 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. The classes are a credit counseling course and a debtor education course. People must take the credit counseling before filing for bankruptcy. Its goal is to assess if bankruptcy is the right option. 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
When you file for bankruptcy in New Jersey, all qualifying debt at the time of the filing will be included in your discharge or repayment plan. As a result, it important to 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. You will need to take full responsibility in paying for them.
Needless to say, timing is of utmost importance. Careful planning and consideration is necessary to project any huge amount of future debt. For example, a loved one may be facing a serious medical prognosis. This may create a looming costly medical procedures for which you will be responsible. In such cases, it will be best to wait for the procedure to be over 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 must contend with unfiled debts. This is 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. Call us if you have medical debt and need help.