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Bankruptcy and Medical Debt

Many people in California and the rest of the United States view bankruptcy as a last choice option. Unfortunately, each year many people end up pursuing this option because they have accumulated a large amount of medical debt and are unable to pay it off. One study even found that greater than 66% of all bankruptcies are the result of medical issues. To put this into a number, each year approximately 530,000 people end up pursuing bankruptcy as the result of medical debt. To make matters worse, after the implementation of the Affordable Care Act, the United States saw an increase in how many people are filing for bankruptcy. Due to the increased number of people who must navigate this process, the following will review some important factors to consider if you end up pursuing bankruptcy as the result of medical debt.

Realize the Danger of Ignoring Medical Debts

It is rare for  medical debts to end up reflecting on a person’s credit report. If a person ignores the debt, it can eventually end up on the debt of a collector, though. In these situations, the medical debt which normally would remain interest-free can begin to incur penalties and have other fees tacked onto it. To avoid these complications, it is often best to pay the bill as soon as you can. Otherwise, you can easily end up facing a much larger debt than you would have originally been required to pay.

Using a Debt Settlement Company

It is often best to first make an effort to pay the medical debt on your own, particularly if you do not have any other issues with debt. In these situations, relying on a debt settlement company often can leave you facing additional issues. This is because many debt settlement companies are not able to live up to their promises. For one reason, these companies lack the power that bankruptcy courts have to force creditors to settle debts. Debt settlement companies are often not the best option to repay medical debts.

Filing Bankruptcy for Only Medical Debt

Some people find themselves facing a large amount of medical debt and wonder if it is possible to file bankruptcy for just medical bills without including other debts. While it is possible to file bankruptcy for medical bills, it is rarely possible to do this without filing for additional debts as well. Even though bankruptcy offers the ability to discharge debt, you cannot determine who receives payments or which obligations you would like to uphold.

Ways to Handle Medical Debt

By utilizing various strategies, it is sometimes possible to handle medical bills so that you do not need to file for bankruptcy. Some of these techniques include:

  • Appreciate that medical bills are one of the most common reasons why people in the United States file for bankruptcy. 
  • Ask your medical billing office if they will provide you with a discount. Many times, billing offices are willing to work with people if they are honest about the debts that they owe.
  • Avoid placing medical debt on credit cards or any type of financial account. 
  • Avoid medical debt in the first place by having medical insurance. If necessary, you might even be able to locate an insurance policy that will address your needs and provide sufficient coverage so that you do not end up facing large medical debt.
  • If you are not insured, inform your medical provider that you do not have insurance. In these situations, it is often possible to obtain a discount on the debt that you owe. 
  • If you are unable to repay your bill in full immediately, ask for a repayment plan. Medical providers will often provide you with debt repayment options.
  • If you have been diagnosed with a serious illness, locate a charity organization that helps to repay these debts.
  • Realize that medical debt is tax-deductible and should be claimed on your taxes. 
  • Remember that medical debt will not negatively impact your credit score unless details about the debt end up being sent to a collection agency.
  • Reviewing your medical bills to make sure that there are no errors in charges made. Any wrongly provided information can impact how much your insurance covers.
  • Utilizing a church group or other organization that can help provide you with finances to repay these debts.

Using Your Job to Cut Medical Bills

Sometimes, changing jobs is the best approach to handling medical bills. While many employers once provided health insurance and workers rarely had to pay anything toward this coverage, this is often no longer the case. If you anticipate large medical bills, you should give serious consideration to the various debts that you owe. In situations in which you do not plan on leaving your current job, you should instead consider discussing the matter with your company’s HR department. This way you can make sure that you are taking full advantage of the benefits provided by your job. In other situations, the prospect of medical debt might mean that now is a good time to begin pushing for a small raise at the company, which could be used to handle these costs. If you are facing medical debt, avoid using your job as a method to cut medical debt. 

What Happens if a Person Faces More Medical Bills?

Timing in bankruptcy is often everything. If you anticipate needing additional treatment or will face additional medical costs in the near future, it is often a good idea to wait to file bankruptcy. Instead, it is often best to wait to file for bankruptcy after all medical treatment you anticipate receiving has concluded. 

Losing Medical Providers Due to Bankruptcy

Some people hesitate to file for bankruptcy for fear that their medical provider will stop treating them if they discharge the medical debt in bankruptcy. While medical professionals can decline to treat you further, many medical professionals ultimately choose not to deny you treatment provided that you pay ongoing bills. These professionals often have had other patients navigate bankruptcy and continue receiving medical treatment. Additionally, many of these medical professionals understand that a person is not able to file for bankruptcy again until several years have elapsed. You certainly need not let this concern prevent you from filing for bankruptcy.

Chapter 7 Bankruptcy and Medical Debt

One of the fundamentals of Chapter 7 bankruptcy is that different types of debt are treated differently during the bankruptcy process. Debts are often separated into secured and unsecured amounts. A secured debt is a type of amount owed in which a creditor can foreclose or repossess your property due to nonpayment. Unsecured debt, however, involves amounts that are not secured by property. Additionally, unsecured debt is divided into priority debts, which are often not capable of being discharged, and non-priority debts, which are often capable of being discharged in bankruptcy. In the case of most Chapter 7 bankruptcy filings, medical debt is classified as a non-priority unsecured debt, which means the amount does not receive priority over other amounts. 

This also means that medical debt is often discharged during Chapter 7 bankruptcy. There are also not any limits in Chapter 7 bankruptcy regarding the amount of debt that a person is capable of discharging. To obtain these benefits of Chapter 7, however, a person must first qualify for this type of bankruptcy, which involves passing a means test. Even if a person qualifies for Chapter 7 bankruptcy, sometimes this option is not in a person’s best interest. For example, if a person only has secured debts that cannot be discharged in Chapter 7, this is likely not a good option.

If You Have Medical Debt After Filing for bankruptcy

Some of the strategies that you can utilize to pay off medical debt that accrues after navigating the bankruptcy process include:

  • By learning how medical debt has impacted your income in the short term, you will be prepared to handle these issues in the future. 
  • Learning the extent of your debt and finding out if you can file for bankruptcy again. 
  • Creating a budget that can help you resolve your medical debt issue quickly. 
  • Avoiding having your bill proceed to a debt collector. Even if you are not able to pay anything on the debt, contact your medical provider and let them know that you are not able to pay the debt.
  • Taking steps to cut the medical costs that you end up facing. There are many healthy changes that you can utilize to achieve these goals including quitting smoking, receiving routine care, shopping around for the best deals possible, eating the appropriate types of food, and exercising. 

Speak with a Bankruptcy Attorney Today

Regardless of whether your debt is caused by medical bills or any other factor, navigating the bankruptcy process can be challenging. Fortunately, an experienced bankruptcy attorney can help. Contact attorney Melanie Tavare today to schedule a free case evaluation.

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