Medical debt is one of the leading causes of modern bankruptcy. Even people with good health insurance may end up facing major medical debts due to coinsurance, uncovered treatments or out-of-network care.
Over 100 million people in the United States have medical debts. Medical bankruptcy has begun to draw the attention of major news outlets because it has become such a common issue. Those coping with high levels of medical debt may face aggressive debt collection efforts. They may wonder which type of bankruptcy can help them discharge the major debts associated with medical care not covered by health insurance.
What type of personal bankruptcy can be beneficial for those with significant medical debt?
A number of factors determine the best option
While mainstream media outlets sometimes refer to bankruptcy cases related to medical debt as medical bankruptcy, there isn’t actually a specific type of bankruptcy for medical debt. Instead, the filer selects the type of bankruptcy that is appropriate given their personal assets and income level.
Those who have income below the state median for their household size may be eligible for Chapter 7 bankruptcy. Those with more personal property or higher levels of income may find that Chapter 7 bankruptcy isn’t the best option. Chapter 13 bankruptcy can help people eliminate major debts without putting their assets at risk.
In both cases, the filer can potentially discharge unsecured medical debts. They may also be able to prevent a medical creditor from successfully suing them and either placing a lien against their primary residence or garnishing their wages.
In a Chapter 13 bankruptcy scenario, medical debts are typically part of the repayment plan that the filer must complete. They may need to make between three and five years of structured payments facilitated by the court-appointed trustee before they can discharge the remaining balance due on their medical debts. For those who qualify for Chapter 7 bankruptcy, it may be possible to discharge medical debts within a few months of filing for bankruptcy.
Reviewing personal resources and income with a skilled legal team can help people choose the best type of bankruptcy given their unique circumstances. People struggling with high levels of medical debt can eliminate their obligations through personal bankruptcy and move on to a future where they are physically and financially healthier.