In the United States, one of the top causes of personal bankruptcy is medical debt. The healthcare industry is responsible for more collections of debt than credit card companies. This is because medical expenses can reach into the tens to hundreds of thousands of dollars depending on the procedure. In some cases, medical bills also include out-of-network expenses — such as assisting doctors — for which the patient isn’t prepared. The end result of this type of practice is nationwide medical debt.
When medical debt becomes financially crippling, many people consider bankruptcy to help them find relief. With the rising cost of healthcare and the lack of insurance coverage by many Americans, many people are turning to bankruptcy lawyers to inquire whether or not medical debts are dischargeable.
Here’s what you need to know about how medical debts are viewed under bankruptcy law:
- Medical debts are considered “unsecured” debts. Medical debts are considered unsecured debts because they are not backed by a person’s physical property. With secured debts, failure to make a payment can result in the person’s property being repossessed because the creditor has a lien on the property. This is usually the case with vehicle loans or home mortgages, but medical debts would not fall under that category.
- Medical debts are considered nonpriority debts. Priority debts — such as certain taxes or domestic support obligations — are not dischargeable in a Chapter 7 bankruptcy. They are paid prior to other debts during the bankruptcy process. On the other hand, nonpriority unsecured debts, like medical bills or credit card debt, do not receive special treatment and are usually the last ones to be paid. They are usually discharged during the Chapter 7 bankruptcy without any need for repayment.
In a Chapter 7 bankruptcy, medical debts are dischargeable. Even if some of the debt is paid during the bankruptcy process, the remainder will most likely be discharged as part of the bankruptcy. This makes Chapter 7 a popular option to get these debts under control and achieve financial relief.
In a Chapter 13 bankruptcy, the medical debt can be included as part of the repayment plan. The amount of the repayment plan would still be determined based on income, expenses, and nonexempt assets. However, if medical debts exceed the allowable limit under Chapter 13 bankruptcy, the individual may not be able to file.
It is important to have skilled attorneys on your side during bankruptcy. Our Southern California bankruptcy lawyers at Wadhwani & Shanfeld can help you determine the best option for your specific situation. We have handled more than 10,000 bankruptcy filings, giving us the experience and knowledge necessary to help you get through this difficult time.
Ready to discuss your bankruptcy needs? Give us a call today.