Medical expenses are an ongoing challenge for millions of American families. In fact, a study covering consumer credit data from 2009 to 2020 revealed that 18% of U.S. citizens had some amount of medical debt in collections. This category of debt is distinct from car loans, mortgages, or credit cards because medical expenses are rarely planned. If an unexpected event happens and you are sick or injured, you may be saddled with expenses you can’t afford, even with a health insurance policy.
Significant medical expenses can destroy household finances, especially if the debt is given over to a collection agency and reported to the credit bureaus. Given all of this information, is bankruptcy a valid way to deal with medical debt?
Discharge of Medical Debt
Bankruptcy is a legal process developed to help individuals reduce, eliminate, or repay their debt, including medical debt. This is typically achieved through liquidation of assets (Chapter 7) or a repayment plan (Chapter 13), as both Chapters can help clear medical debt.
- Under Chapter 7 bankruptcy, individuals are eligible regardless of the amount of debt, including medical bills. Filing parties must pass a means test, which is meant to ensure that you are not abusing bankruptcy laws.
- Chapter 13 bankruptcy is for those with debts (both secured and unsecured) not above an established limit. According to the U.S. Courts website, any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s combined total secured and unsecured debts are less than $2,750,000 as of the date of filing for bankruptcy relief.Did You Know? Most medical bills are considered to be unsecured debts as they are not backed by any collateral.Those looking to be released from medical debt can file either Chapter 7 or Chapter 13 bankruptcy. Either filing will cover most debt, including medical bills. There is no such thing as a “medical bankruptcy.”
Filing for bankruptcy in this scenario requires some forethought.
- If overwhelming debt is making it impossible to cover daily expenses – and the medical condition prevents the ability to earn income – Chapter 7 may permit the discharge of medical debt within months. However, those with a steady source of income may be better off with Chapter 13 debt reorganization and repayment.
- Health status may influence the course of action. If a very expensive treatment is scheduled for the near future, it may be best to delay filing in case the financial situation worsens. Remember, there are limits applied to how often you can file for a Chapter 7 bankruptcy, and how soon you can file again. However, Chapter 13 cases can be filed repeatedly by simply waiting 6 months to file.
Alternatives to Bankruptcy
Bankruptcy is a legal decision that has long-term ramifications. It should not be taken lightly. It is recommended that you seek the advice of a professional bankruptcy attorney to help you discern the best course of action.
Some options that may help those with medical=related debt to avoid bankruptcy include:
- Check to confirm if the debt is legally due. The 2022 No Surprises Act forbids private insurers to bill extra for many emergency services, including out-of-network or non-authorized services.
- Hire a medical billing advocate. An experienced advocate can analyze medical bills to discover errors, duplicate or unreasonable charges, and fraud. They can also determine if the insurance company has paid its agreed-upon share and negotiate to get wrongful charges remediated. The Patient Advocate Foundation provides this service at no charge for patients and families facing chronic health conditions.
- Research financial assistance programs. Individuals may be eligible for assistance with paying medical bills and obtaining forgiveness.
- Ask about a repayment plan. If you don’t qualify for aid, ask about repaying your medical expenses over time to avoid debt collections.
- Call your State Health Insurance Assistance Program. If you have Medicare coverage, you are eligible for counseling through your state health insurance assistance program (SHIP). SHIP is available in all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands. Also, if you are a veteran, Veterans Affairs (VA) offers free debt counseling and may be able to help with medical debt assistance.
In Summary
Bankruptcy can be a valid solution to medical debt. If your medical expenses are increasing and the threat of debt collection is becoming a reality, bankruptcy may be your best option.
Call the offices of Richard V. Ellis today to get the professional advice you need.
