A sickness or injury can happen without warning, requiring expensive medical procedures and treatment. Whether or not you have health insurance, medical bills can quickly add up. But what are your options when medical debt becomes unmanageable? Can you file bankruptcy on medical bills?
It’s no surprise that medical bill debt is one of the most common reasons people file for bankruptcy. Below, we discuss how medical bills are treated in bankruptcy. To learn more, contact a Charlotte NC bankruptcy attorney at the Law Office of Jack G. Lezman, PLLC today.
What Happens When You Have Outstanding Medical Debts?
When you leave medical bills unpaid, creditors can take collection actions against you. This may involve anything from harassing phone calls to being taken to court. The creditor can then win a court order for wage garnishment, property liens, or bank account levies.
If you are buried under medical expenses and your illness or injury prevents you from working, bankruptcy can provide a way out. By filing for bankruptcy, you will benefit in two ways.
- First, you will be granted an “automatic stay”, which temporarily but immediately stops creditors from taking collection actions against you.
- Second, you can have certain debt discharged, or cleared.
How Is Medical Debt Treated in Bankruptcy?
Bankruptcy laws handle debt in different ways depending on whether it is “secured” or “unsecured”. Certain priority debts, such as taxes, child support, and alimony, cannot be discharged through bankruptcy. Secured and unsecured debts, however, can be reduced or wiped out completely through bankruptcy.
Secured debt are loans backed by collateral, or tangible property such as a car or home. So, your home mortgage or car loan are secured debts. Secured debts have priority over unsecured debts in bankruptcy.
Unsecured debts are not secured by collateral. Examples are credit card bills and medical bills. They have the lowest priority in bankruptcies. So, they can be eliminated entirely in bankruptcy depending on the type of bankruptcy you file.
What Types of Bankruptcy Can Wipe Out Medical Debt?
Unsecured debts, including medical bills and medical expenses paid by credit card, can be wiped out in Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, your assets are put into a bankruptcy estate. The estate is then liquidated to pay some of your debts.
To qualify, your disposable income must be below the state’s median income level. Or, you must pass a “means test”, which assesses your expenses relative to your income.
Most people who file for bankruptcy on medical bills will choose Chapter 7 bankruptcy. If you meet the income requirements, Chapter 7 will eliminate your unsecured debts. It will also take less time and money than Chapter 13.
Unsecured debts are grouped together and repaid through a multi-year repayment plan in a Chapter 13 bankruptcy. The amount of outstanding medical debt you pay could be reduced depending on your income, expenses, and non-exempt assets.
Chapter 13 bankruptcy works if you have enough income to pay monthly installments of a three- or five-year repayment plan. It is also beneficial if you have property you’d like to protect from liquidation, such as a home or car.
Unlike Chapter 7, you will have to pay some portion of your debts, which could include your medical bills. Your unsecured debts may not be completely wiped out in a Chapter 13, but they could be substantially reduced. At the end of your repayment plan period, the remainder of those debts are discharged.
Learn More About Filing Bankruptcy on Medical Bills
Can you file bankruptcy on medical bills? Yes, but it can be a complicated and confusing process. A Charlotte NC bankruptcy attorney at the Law the Office of Jack G. Lezman, PLLC can help. Contact us today to learn more.