Find Relief From Medical Debts Through Bankruptcy

Accidents or illnesses are unpredictable events that no one anticipates. Nevertheless, the bills can accumulate rapidly when confronted with a medical issue. Additionally, the health condition may impact household income, causing further concern for the individual affected, whether it is oneself or a loved one. As a result, individuals may consider exploring options such as bankruptcy and medical debt relief in Bridgewater, NJ, to alleviate their financial difficulties.

This situation leads to heightened stress, increasing bills, and a diminishing financial capacity to address them—a challenging combination. Consequently, substantial medical debt often ensues, and healthcare providers expect timely payment.

Short Summary:

  • Bankruptcy offers a fresh start for individuals overwhelmed by medical bills and other debts.
  • Choose between wiping the slate clean with asset liquidation (Chapter 7) or keeping assets with a repayment plan (Chapter 13).
  • Consider negotiation, government programs, and debt consolidation before filing for bankruptcy. 
  • Understand your eligibility based on income, debt amounts, and other factors.
  • Plan carefully to include all relevant debts and maximize your bankruptcy benefits.

What is Bankruptcy?

Bankruptcy is a legal process that individuals, businesses, or entities can undergo when they cannot repay their outstanding debts. It provides a way for them to either eliminate or repay their debts under the protection of the bankruptcy court. The primary purpose of bankruptcy is to offer a fresh start to debtors overwhelmed by financial burdens.

Bankruptcy can provide relief for individuals or businesses facing overwhelming financial challenges but also has long-term consequences, such as impacting credit scores and the ability to obtain credit in the future. The decision to file for bankruptcy should be considered carefully, and individuals often seek legal advice to understand the implications and choose the most appropriate type of bankruptcy for their situation.

What is Medical Debt?

Medical debt arises when individuals encounter financial challenges due to healthcare costs. Those disproportionately affected by unpaid medical bills include individuals with disabilities or those undergoing economic hardships, rendering minorities particularly susceptible to accruing medical debt.

While a dedicated bankruptcy category for medical debt is unavailable, remember that one cannot initiate bankruptcy proceedings solely based on overwhelming medical expenses. Nevertheless, medical debt qualifies for forgiveness as it falls under unsecured debt, lacking collateral support. In contrast to secured debt, which is tied to specific assets that can be seized, unsecured debt lacks such attachments.

When filing for bankruptcy, all debts, including medical bills, are considered, alongside other financial responsibilities like credit card debt, car loans, overdue bills, and personal loans. Even if medical bills serve as the primary motivation for seeking bankruptcy protection, a comprehensive evaluation of all debts is essential to determine the most appropriate approach to filing. Given the classification of medical debt as unsecured, it is more likely to be discharged during bankruptcy proceedings.

In instances where an individual’s debt consists predominantly of medical expenses, exploring alternative avenues to address that debt may be advisable before contemplating bankruptcy filing unless the medical debt has escalated to a point where it significantly impacts the individual’s overall quality of life.

Chapter 7 Bankruptcy 

Utilizing Chapter 7 of the U.S. bankruptcy code to shield oneself from creditors is a strategy for individuals grappling with financial difficulties, enabling them to eliminate various debts, including medical expenses. Chapter 7 is known as liquidation bankruptcy and involves selling eligible assets by a bankruptcy trustee to settle outstanding debts. State laws often exempt certain assets from this process. 

Typically taking four to six months to complete, the procedure relieves the debtor of medical debt, even if it does not generate funds to repay healthcare providers. Most Chapter 7 cases fall under no asset filings, where creditors receive no payment, yet debts are discharged.

Nevertheless, a drawback of Chapter 7 is the potential requirement for filers to relinquish property, which can include their homes in some cases. This type of bankruptcy is for individuals lacking sufficient income to meet creditor repayment obligations. Eligibility is determined through a means test conducted by the bankruptcy court, with individuals possessing adequate income directed to file under Chapter 13.

Chapter 13 Bankruptcy

In Chapter 13 bankruptcy (often termed wage earner’s bankruptcy), debtors create a repayment plan spanning three to five years to settle their debts. Disposable income is allocated for payments, and medical bills may be incorporated into the repayment plan. One notable advantage is that filers may maintain relationships with healthcare providers by repaying at least a portion of their medical bills—a factor crucial for the debtor’s future health and well-being.

What are the Alternative Options for Medical Debt Relief?

If you possess a favorable credit score, there are various avenues to explore when faced with a substantial medical bill.

  • Negotiation: Negotiating can prove highly effective when responding to a creditor’s call. Taking the initiative to answer the phone and attempt to settle can be a viable strategy. However, it is essential to be well-prepared before engaging in conversations and refrain from providing any information prematurely. Some medical providers may surprisingly be open to waiving or discounting some bills. Nevertheless, patients often encounter disparities in medical pricing, with common occurrences of hidden fees and billing errors. Hospitals may charge different prices for identical procedures based on the patient’s insurance. 
  • Exploring Assistance Programs: Hospitals typically offer financial assistance programs for eligible individuals, granting free or reduced care based on income. Nonprofit hospitals also extend aid to those in need. However, nonprofit hospitals may lack consistent accountability, occasionally failing to inform individuals of their eligibility for care. 
  • Debt Management Plan: Seeking advice from a credit counseling agency can be beneficial before medical bills become overwhelming. Nonprofit credit companies can assist in devising a plan to repay medical debt, potentially offering extended repayment terms with lower interest rates and no fees.

How Can I Determine If Bankruptcy Is the Most Suitable Choice for Me?

While incorporating medical bills into bankruptcy can offer several advantages, acknowledging that filing for bankruptcy due to medical debt may not be appropriate for everyone is crucial.

To assess whether you are a suitable candidate, consider contemplating medical bankruptcy if:

  • Medical debt is not your exclusive financial obligation, even if you could manage other debts before encountering health issues.
  • Negotiation attempts with medical creditors to reduce or eliminate your debts have been futile.
  • Establishing a payment arrangement directly with the medical care provider is challenging. While some providers may accept minimal monthly payments such as $10 or $20, this may not always be a viable option.
  • Your medical debts have been reported to a credit bureau, or creditors are threatening to do so. While this situation may occur less frequently with medical debt compared to other types of debt, it is still a factor to consider.
  • Medicaid or Medicare does not offer adequate coverage for your medical expenses.

When is the Best Time to File for Bankruptcy For Medical Debt?

When initiating bankruptcy proceedings in New Jersey, all qualifying debts at the time of filing will be encompassed in your discharge or repayment plan. Therefore, it is critical to consider if there are impending significant bills that could disrupt your filing. Remember that subsequent medical bills received after submitting your bankruptcy petition will not be eligible for potential discharge or repayment, and you are responsible for settling them.

Timing is crucial, and careful planning is essential to anticipate any substantial future debt. For instance, if a loved one is facing a severe medical prognosis, leading to impending costly medical procedures for which you will be accountable, it would be advisable to wait until after the procedure concludes before filing for bankruptcy.

While waiting for the opportune moment might seem challenging, especially amidst financial stress, patience is worthwhile, ensuring all debts are included in your bankruptcy petition. Failing to cover certain debts means dealing with unfiled obligations. Be aware of the strict rules governing when you can pursue another discharge through bankruptcy. There are specific waiting periods before filing for bankruptcy a second time—eight years for Chapter 7 bankruptcy and four years for Chapter 13 bankruptcy.

Reach Out To Us Today!

Are you overwhelmed by the burden of medical bills and unsure of where to find relief? Entering the realm of bankruptcy, with its intricacies involving Chapters 7 and 13, can be daunting. You do not have to navigate this complex journey on your own!

Karina Lucid Law can assist you through:

  • Free consultation: Engage in a conversation about your situation with our experienced bankruptcy attorneys to identify the most suitable path for your unique circumstances.
  • Individualized guidance: Say goodbye to generic solutions. Our advice is personalized to address the specifics of your situation and debt.
  • Discharge eligibility: Gain insight into which debts can be eliminated and the potential impact on your credit score.
  • Clear roadmap: Receive a comprehensive, step-by-step plan to address your medical debt through bankruptcy effectively.

Regain control of your financial situation, and contact our bankruptcy law firm today for a free consultation regarding bankruptcy and medical debt relief in Bridgewater, NJ.