How Bankruptcy Can Help With Medical Debt

Most people think that credit card debt and student loans are the most problematic type of debt today. However, the booming increases in medical debt can be just as much of a problem for the average consumer. In fact, studies have recently shown that an estimated 1 in 5 American adults may be contacted by a debt collection agency about medical debt in a given year. Many of these debts, if unpaid, get sent to collection agencies. These agencies then have many tools at their disposal to get the consumer to pay. What’s worse is that there are rampant billing errors in the medical industry that can cause consumers to overpay.

Fortunately, bankruptcy can be the solution that can help consumers eliminate that medical debt.

In bankruptcy, different types of debts are treated differently based on priority because some debts are more “important” than others. A secured debt is when a creditor has a lien on the debtor’s property and can repossess or foreclose on it if the consumer fails to make the loan payments. The most common types of this are mortgages and car loans. Medical debt is typically not a secured debt.

Unsecured debts are those debts that are not secured by a piece of property. There are priority and nonpriority unsecured debts. Priority debts are usually not dischargeable and will get paid before most other debts in a bankruptcy. The most common examples of these priority debts are taxes and domestic support obligations. The group of debts known as nonpriority general unsecured debts do not get special treatment and are the last group of debts to get paid in bankruptcy.

So, medical debt is most commonly treated as a debt in that last group of debts. Because it is likely to be general unsecured debt, the medical debts will not receive priority and will get paid last. Even if a portion of the medical debt is paid through the bankruptcy, any deficiency left at the end will be discharged, or wiped out.

Because medical debt is in the category of general unsecured debt, Chapter 7 bankruptcy is often the easiest and best solution for dealing with large amounts of medical debt. Of course, the consumer still needs to qualify for Chapter 7 bankruptcy. To qualify for a Chapter 7 bankruptcy, the consumer’s income bust be low enough to pass a disposable means test. However, even if they do not qualify for Chapter 7, Chapter 13 can still provide a great deal of relief depending on the total debt situation of the consumer.

It’s a fact of life these days that medical costs are high. Plus, bills are confusing and often inflated. So, rather than paying for exorbitant medical bills and enduring years of punishing interest, call a reputable bankruptcy attorney in your area to discuss options today. Every day that goes by without filing bankruptcy is more interest accruing.

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