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Medical Debt and Bankruptcy

Hunt Law Firm Feb. 5, 2024

Dollars with stethoscope on themIn the United States, medical bills are a pressing issue that affects millions of people. 1 in 10 adults — or approximately 23 million individuals — owe at least a few hundred dollars in medical debt.  

For many, this burden can lead to financial strain and even bankruptcy. In fact, medical debt is the leading cause of bankruptcy in the United States. So if you're considering declaring bankruptcy because of mountainous medical debt, know that you're not alone.  

In this article, Hunt Law Firm is going to delve into this issue, explore the options available for those burdened by medical debt, and discuss how bankruptcy might offer a lifeline.  

Your Bankruptcy Options for Clearing Medical Debt 

If you're grappling with medical debt, there are options available to help you regain control of your financial situation. One of these options is bankruptcy, specifically, consumer bankruptcy chapters 7 or 13. 

Chapter 7 

Chapter 7 bankruptcy, often referred to as straight bankruptcy or liquidation bankruptcy, could be a lifeline for those drowning in medical debt. It's designed to eliminate all medical and credit card debt, giving you a fresh start. In the eyes of the law, medical bills fall under nonpriority or general unsecured debt, which means Chapter 7 has the power to discharge these debts completely. There's generally no limit on the relief you can get for medical costs and care under this chapter. 

To be eligible for Chapter 7 bankruptcy: 

  • Your current monthly income should be less than your state's median income. 

  • Your disposable income needs to be low enough to pass what's known as the means test. 

  • You shouldn't have filed for bankruptcy within the past six years. 

  • You must not have had a bankruptcy dismissed due to a failure to appear in court. 

Chapter 13 

On the other hand, Chapter 13 bankruptcy is more like a debt reorganization. This process requires you to pay some or all of your debts within three to five years. Much like Chapter 7, it can help you address medical debt, but it gives you more time to repay the remaining balance via a structured payment plan.  

This option might be more suitable for those with a higher income who don't qualify for Chapter 7. To qualify for Chapter 13, you must meet the following criteria:  

  • Maintain a consistent income. 

  • Have completed a Chapter 13 bankruptcy for at least two years, or a Chapter 7 bankruptcy for at least four years. 

  • Be current with your tax filings. 

  • Ensure that your unsecured debt does not exceed $419,275, and your secured debt does not exceed $1,257,850. 

Navigating the world of bankruptcy can feel overwhelming, but there's always a way forward, and you don't have to do it alone. Reach out to Attorney Gwendolyn E. Hunt at Hunt Law Firm in DeSoto, Texas. With her guidance, you can better understand these options and choose the one that best suits your financial situation.  

The Downsides to Bankruptcy 

While bankruptcy can provide relief from medical debt, it's essential to understand its long-term impact on your credit. A Chapter 7 bankruptcy can linger on your credit report for up to 10 years, while a Chapter 13 can stay for up to 7 years.  

During this time, securing new credit or loans might be challenging, and you could face higher interest rates. That's why it's in your best interests to weigh these consequences and your alternative debt-relief options before moving forward with bankruptcy.  

Alternatives to Bankruptcy 

Bankruptcy is not the only path to financial relief from medical debt. Other options include:  

  • Double-check if your medical debt is legally due. With the No Surprises Act in effect, private insurers can't charge extra for most emergency services, even if they're out of network or didn't have prior authorization. Furthermore, if you received out-of-network services at an in-network facility, the law prohibits extra charges. 

  • Consider bringing a medical billing advocate on board. They're pros at analyzing medical bills, spotting errors, and negotiating with insurers on your behalf. You'd be surprised how often duplicate charges or errors can slip through the cracks. 

  • Don't be shy about asking for financial assistance programs. Many organizations offer help with paying bills and some even provide medical debt forgiveness. Nonprofit hospitals often run indigent care and charity-care programs that offer free or low-cost medical treatment for those who can't pay. 

  • If you're covered by Medicare, reach out to your State Health Insurance Assistance Program (SHIP). They offer counseling and assistance with Medicare-related issues. For those who've served our country, Veterans Affairs (VA) provides free debt counseling and may be able to help find financial assistance for medical debt. 

  • Lastly, many medical institutions will work with you to create a repayment plan. This allows you to pay your medical bills over time and avoid having your debt sent to collections. 

Consider Speaking With a Lawyer 

Medical debt can be a heavy burden, but remember, you're not alone. Bankruptcy may be a possible solution for those facing insurmountable medical bills. Understanding different types of bankruptcy, eligibility requirements, and their impact on your credit is vital when considering your options. It's also worth exploring alternatives to bankruptcy to find the best path to financial relief.  

Don't hesitate to consult with a bankruptcy attorney like Attorney Gwendolyn E. Hunt at Hunt Law Firm for valuable guidance throughout this process. From her office in DeSoto, Texas, she works with clients throughout the Dallas and Fort Worth area.