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Can you discharge medical debts in bankruptcy?

Yes. You can get rid of most medical debts by declaring Chapter 7 or Chapter 13 bankruptcy. These are two types of consumer bankruptcy..

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General unsecured debt is considered “nonpriority”, or general unsecured debt. Chapter 7 bankruptcy is a way to get rid of all credit card and medical debt. This might be the best option if you have increased your credit card debt due to health care costs.

Chapter 13 bankruptcy will allow you to discharge some of your medical debts and leave you with more time to repay the rest. Higher income individuals may be required to file Chapter 13.

Filing Chapter 7 to Pay Medical Debt

All medical debt will be discharged by Chapter 7. There is no limit to the amount of debt relief that you can receive for medical expenses and credit card medical care. These debts cannot be repaid with a repayment plan.

To be eligible for Chapter 7, you must pass the Chapter 7 Means test. The test examines your state’s median income, your income, and any necessary expenses. Chapter 7 is for you if your monthly income falls below the state’s median. If you don’t have enough income to pay certain expenses, you can file for Chapter 7.

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Remember that bankruptcy does not erase student loans or child support. You will also need to continue paying your health insurance while you are in bankruptcy. Sometimes, bankruptcy courts may use automatic wage garnishment to pay costs or other debts not covered in Chapter 7.

Filing Chapter 13 to Pay Medical Debt

Chapter 13 will “dispose” your medical debt by combining all of your bills and debt into one. However, you will still have to pay some back. The repayment plan is based on your income, assets, bills, equity, and other expenses. Chapter 13 may not be available to you if your monthly bills are unpaid and your creditors aren’t paying your debts.

Unlike Chapter 7, a Chapter 13 bankruptcy has debt limits. These debt limits are subject to change every few years. The current limit for all unsecured debts is $419,275 (not just for medical debt). You can file Chapter 13 if your debt exceeds this amount and get most of your medical debt forgiven. However, only a small fraction of it will be repaid.

Depending on the amount of your debt, 70% might be wiped out and 30% owed. Based on your income, debt level and bankruptcy court status in your state, the percentages may change.

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Secured vs. Secured vs. Unsecured Debts

Secured debt refers to any debt with collateral such as a car loan or house loan. This means that if you can’t pay it off, the creditor is “secured” in obtaining their money back. They have the right to seize the property.

Unsecured debt refers to any debt without collateral. Although you may have purchased an item or received a service, unsecured debt is not property that creditors can seize. This includes credit card debts, medical bills, utility bills and other common types of debt.

Both are different from priority debts. Priority debts cannot be discharged and do not pay for property. They must be paid back. These include student loans, child support payments and taxes.

These three types of debt can make up your total debt. All unsecured debts can be discharged in Chapter 7 bankruptcy. However, Chapter 13 bankruptcy is not possible (see Chapter 13 section).

Are you feeling lost in medical debts?

If you’re just beginning your journey to medical bankruptcy, you can take a look at credit counseling (some of which are required after you file for bankruptcy), or get a free consultation with a bankruptcy lawyer by calling.

In many cases of medical debt, bankruptcy filings are inevitable. Professional help is a good way to improve your credit score and get you started on a new chapter.

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A lawyer can also advise you:

  • Medicaid and Medicare in bankruptcy
  • Seeing medical providers after filing for bankruptcy
  • Stopping collection calls from collection agencies or unsecured creditors
  • During bankruptcy, you have rights under the Affordable Healthcare Act
  • Personal loans to pay for medical expenses
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