Medical Debt & Bankruptcy
May 4, 2022
Most of us work hard every day to make sure we can support ourselves and our families. We save our money, we invest, and we spend wisely knowing that we’ll be able to face the challenges that inevitably lay ahead. However, even though we may be prepared for unexpected bills from an auto repair shop or having to buy a new water heater, most of us are not adequately prepared for unexpected medical bills. Medical debt can quickly add up—even if you’re insured—and when this happens to you, you may be wondering what your choices are for debt relief and if this may include filing for bankruptcy.
For over 40 years, I’ve been helping Oregonians with their legal financial questions at Oregon Fresh Start. I have offices in Bend and Hermiston, Oregon, but I am able to help individuals in the Portland and Eugene areas as well. Reach out to me today to schedule a consultation.
Will Bankruptcy Discharge Medical Debt?
You may have heard the term “medical bankruptcy” mentioned in advertisements, but you should know that there’s no such filing that solely focuses on medical debt. True, filing for bankruptcy will discharge medical debt, but it’s only one of several types of debt that will be addressed. Bankruptcy can be the right choice for individuals who’ve found themselves saddled with unexpected medical debt, but you should always take a look at other options first.
An experienced and thoughtful bankruptcy attorney won’t push you into filing before thoroughly examining your other options. For example, they may be able to help you negotiate a settlement with your medical provider that reduces your overall costs. This option can prove especially effective for uninsured patients as providers will regularly waive a portion of your bill for uncovered costs. Or you may be eligible for an assistance program if you meet certain income requirements.
Which Chapters Can Help With Medical Debt?
There are two main types of bankruptcy available to individuals: Chapter 7 and Chapter 13. Each has its own criteria for qualifying and each provides benefits and drawbacks of using it to address medical debt.
Chapter 7 Bankruptcy
Chapter 7 is the fastest form of bankruptcy and is generally preferred by those who qualify. It’s often referred to as “liquidation” bankruptcy because individuals must liquidate their assets to pay off creditors before their debts are discharged. Certain debts like student loans, tax, or child support are non-dischargeable, but medical debt is dischargeable, which makes this a popular choice for those facing bills they can’t cover. It should also be noted that not all of your assets will have to be sold, as the law allows most people to keep property that they’re making regular payments on like their car and home by signing a “reaffirmation agreement.” Most people also get to keep possessions like clothing, furniture, and their bank accounts.
To qualify for Chapter 7, your annual income must be less than the median income in the state for the same size household. The vast majority of people qualify by income alone—but if you exceed the median, you still may be able to qualify by passing a “means test” that evaluates your disposable income. Chapter 7 can be a great choice for those with medical debt and who have few assets. In many cases, your primary assets will be exempt and you’ll wipe out your debt within four months.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also called the “wage earner’s option” because, in order to qualify, you must have a high enough monthly income to be able to cover your expenses and make regular payments to your creditors. Working with the bankruptcy court, you’ll establish a payment plan that consolidates your debts into one monthly payment that you’ll commit to for the next three to five years. With this type of filing, you get to keep your assets as long as you remain current on your payments. At the end of this period, any remaining dischargeable debt will be wiped out. Like Chapter 7, debts like alimony, child support, or taxes are non-dischargeable, but medical debt is eligible. This is a good option for those with a steady income stream and those who have a lot of assets and don’t want to risk losing them.
How an Experienced
Attorney Can Help
Before you engage in any kind of debt relief plan, it’s always a good idea to work with a financial advisor or bankruptcy attorney who can better help you understand your options. While you may have hesitations about filing for bankruptcy, it can serve as an invaluable tool to help individuals cope with the weight of medical bills and other debt. Filing for bankruptcy does not mean failure. If you’re in the Bend & Hermiston, Oregon area and would like to know more about your bankruptcy options, call Oregon Fresh Start today.