A medical emergency can happen without warning leaving you out of work and deeply in debt. With or without health insurance, it’s easy for medical bills to quickly pile up. But how can you fully recover from your injury if you are constantly stressed about your medical debt? Can you file bankruptcy on medical bills?
Yes — in fact, medical debt is even one of the leading reasons why people file for bankruptcy in the first place.
What Happens When You Have Outstanding Medical Debt?
Any outstanding debt from medical bills will go directly to collections. You will then receive phone call after phone call until you resolve the issue. In addition, your creditor may use the following debt collection methods against you:
- Property liens,
- Bank account levies, and
- Wage garnishment.
Basically, if you fail to pay your medical bills, your creditor will attempt to take your money by force.
How Can Bankruptcy Handle Medical Debt?
Unsecured debt, or debt not backed by an actual asset, has the lowest priority in bankruptcy, which means you can eliminate it entirely. Fortunately, like credit card debt, medical debt is considered unsecured and can be fully discharged.
You have two options for eliminating medical debt: Chapter 7 or Chapter 13 bankruptcy. While both forms of bankruptcy have their pros and cons, there are a few key differences you should note.
Discharging Medical Debt Through Chapter 7 bankruptcy
The most common form of bankruptcy, also called a liquidation bankruptcy, is Chapter 7. It lets individuals sell off valuable assets and property in order to repay creditors. Chapter 7 is typically the fastest to complete, taking only four to six months from start to finish.
In order to qualify for Chapter 7, your income must be below the state’s median level. You must also take the Means Test, which compares your income to your expenses.
Reorganizing Medical Debt Through Chapter 13 bankruptcy
In comparison, Chapter 13 is a bit more complicated and takes longer. Known as a reorganization bankruptcy, Chapter 13 lets individuals consolidate their debt into a monthly payment plan that can last anywhere from three to five years. After your plan expires, any of your remaining debt is then charged.
Chapter 13 bankruptcy will only work if you have enough disposable income to keep up with your monthly payments. In contrast to Chapter 7, Chapter 13 may not completely wipe away your unsecured debt, although it should allow you to substantially reduce it.
Which Bankruptcy Chapter Should You File?
As stated before, Chapter 7 is often the quickest and most common form of bankruptcy. However, you should also know that Chapter 7 will more negatively affect your credit score than Chapter 13. In addition, Chapter 7 will stay on your record for ten years, while Chapter 13 will only last for seven. Filing for Chapter 13 is also a good option if you have a lot of non-exempt property that you wish to keep.
Contact a Minneapolis Bankruptcy Lawyer Today
Can you file bankruptcy on medical bills? Yes, with the help of an experienced bankruptcy attorney. To learn more about how bankruptcy can help you get out of debt, contact Gregory J. Wald Attorney At Law today.