The problem of excessive and unsustainable medical debt in the U.S. isn’t actually a problem: it’s a full-blown epidemic. A study by the Centers for Disease Control and Prevention (CDC) found that 1 in 3 Americans are burdened by medical bills. And research by NerdWallet Health revealed that medical debt has now earned the dubious distinction of being the number one cause of bankruptcy filings in the nation.
If you’re anxiously watching medical bills pile up — and feeling the heat from increasingly aggressive hospital, doctor and healthcare network collection tactics — then filing for bankruptcy might be a viable option. This is because medical bills are viewed by the courts as general unsecured debts. This is not the case with some other debts, such as child support, alimony, restitution due to a criminal conviction, or student loans. These will remain on the books even after filing for bankruptcy (some people may be able to get relief from their student loan debts if they can demonstrate financial hardship, but that is part of a separate filing).
If your annual income is below the maximum allowable Chapter 7 filing level your state — either outright, or based on calculating your disposable income (total gross income minus certain expenses) — then you’ll qualify to file for Chapter 7 bankruptcy.
If your annual income exceeds the maximum allowable level, then you may qualify to file for Chapter 13 bankruptcy, provided that your total unsecured debt, including your medical debt, doesn’t exceed $394,725. You must also have less than $1,184,200 in secured debt, such as mortgages and car loans
Which Option is Better?
Presuming that you qualify for both Chapter 7 and Chapter 13, which option is best for you? Naturally, this isn’t a question that can be answered in a general way — since your situation is unique, and so are your income-generating options and other financial details. However, here are some advantages of each option, so that you can start getting a sense of what might be the best path for you.
Advantages of Filing for Chapter 7
- The process is relatively short (3-6 months).
- There’s no pay back on most unsecure debt (which as noted above, includes medical debt).
- Your future income isn’t part of the bankruptcy filing.
- You can keep exempt assets, and possibly some or even many non-exempt assets (depending on the laws in your state).
- The filing fees are lower than Chapter 13.
- There’s no need to create a detailed plan and monitor it every month.
- Since a Chapter 7 filing is relatively short, recovery is also quicker — you can probably get an unsecured credit card within a year, and qualify for a mortgage in 2-3 years.
Advantages of Filing for Chapter 13
- You’ll temporary avoid foreclosure on your house or repossession of your car or other assets, which can give you time to improve your cash situation or negotiate with your creditors.
- You’ll protect non-except property that might not be protected under Chapter 7.
- You might be able to “cramdown” a secured loan to the replacement value of the collateral (e.g. if you owe $25,000 on a car loan, but your car is now only worth $15,000, then the bankruptcy court might reduce the debt to $15,000).
- If you owe back taxes to the IRS, then filing for Chapter 13 will compel them to cease collection efforts, and accept whatever the bankruptcy court determines.
- While you can’t wipe out student loans through bankruptcy (any Chapter), if you file for Chapter 13 then it can be included in your repayment plan.
- A Chapter 13 filing will protect anyone who has co-signed any loans with you. This is not the case with Chapter 7, as co-signers can be pursued separately by creditors.
Obviously, this is not a decision you can or should make lightly. Yet at the same time, as bad as your medical debt situation is now, unless you have a viable plan in place to turn the corner, the problem is only going to get worse — and your sleepless nights and stressed-out days will get harder.
Fortunately, you don’t have to brace for impact or get abused by bill collectors. Contact the Law Office of Charles Huber. Our team will learn about your specific situation, answer your questions accurately and without confusing legal jargon, and help you clearly understand your options so that you can make a decision that’s best for you and your family. Call us today — we can and will help.