Medical Debt and Bankruptcy
Two of the most common types of debt include secured and unsecured. Secured debts, like car and home loans, are tied to collateral that can be repossessed if you fail to make a payment. Unsecured debts, like credit cards and payday loans, are not tied to collateral or assets; making them much easier to resolve in bankruptcy. Thankfully, medical debts fall into the unsecured debt category.
Is medical debt dischargeable through bankruptcy?
Yes, it is. If you file for a Chapter 7 bankruptcy, the medical debt is probably completely dischargeable no matter what the amount is. If bankruptcy leads to discharge, one is not bound by an obligation to pay back any of the medical bills incurred and not paid for by the insurance coverage. The specific debt must be listed when filing a bankruptcy petition. In Chapter 13, the medical debt will be lumped in with the rest of one's unsecured debt, and creditors will receive a pro-rata portion of one's payments toward unsecured debt in the Chapter 13 plan.
What relief is available to me through bankruptcy?
The Chapter 13 trustee will receive payments over three to five years following a plan confirmation by Chapter 13 bankruptcy filers. The trustee will disburse all payments amongst a debtor’s creditors in the order of priority. The general unsecured creditors will remain at the bottom of the priority list. Per debt relief rules, secured creditors are paid on a monthly basis in order to maintain the collateral of the loan. The healthcare costs or medical debt related to medical care will be in the last category of debts paid. While student loans are regarded as unsecured debts they are usually non-dischargeable through bankruptcy unless the debtor can demonstrate convincingly that he or she has an undue hardship.
There is a vital difference between Chapter 7 and Chapter 13 bankruptcy filers
Chapter 7 filers will receive the maximum discharge of eligible debts but sometimes their assets are sold to satisfy some of the debt. On the other hand, Chapter 13 candidates will repay some of their debts before receiving a discharge, but they are allowed to keep all of their assets without the risk of sale.
If you would like more information about your medical bills or other debt, contact a Citrus Heights bankruptcy attorney to discuss your options.