The most common reason for bankruptcy filing: medical debt

While there may be a myth that people who file for bankruptcy are careless or have done something wrong, we know that’s not true. There is no reason to be ashamed of filing. The truth is that many people who file for bankruptcy are doing so because of an unavoidable and unforeseen crisis, such as a medical problem.

According to a February 2019 CNBC article, a new study from academic researchers found that 66.5% of all bankruptcies were tied to medical issues because of high costs for care or time out of work. This research also estimated that 530,000 families turn to bankruptcy each year because of medical issues and bills.

Bankruptcy and medical debt

Even though someone may have insurance, sometimes a major event occurs for which they are still underprepared. Major surgery and high medical costs can be detrimental to any household, regardless of their previous financial situation. 

Because medical debt is not related to any kind of property, it is considered an unsecured debt. This means there is a promise to pay something back with nothing physical to exchange if that promise to pay isn’t kept. It is treated in such a way that unsecured debt is often not subject to wage garnishment, unlike mortgages or car loans.

Chapter 7 vs. Chapter 13 bankruptcy

Depending on the type of bankruptcy you qualify for (or is in your best interest), you may be able to eliminate your medical obligations by filing for either Chapter 7, which is the most common solution for many, or Chapter 13 bankruptcy.

Under Chapter 7 bankruptcy, medical debt is treated as a non-priority unsecured debt. Bankruptcy laws prioritize debts, and some debt is considered more important to be paid back and gets taken care of first. However, medical debt, like credit card debt, is frequently considered a lower priority. This means that it can be discharged without any repayment.

If you qualify for Chapter 7 bankruptcy, your discharge will wipe out your medical bills, along with your other general unsecured debts. There is no limit to the amount of medical debt you can discharge with Chapter 7 bankruptcy, but to qualify, your disposable income must be low enough to pass a means test.

If you don’t meet the requirements of filing under Chapter 7, you may be able to file for Chapter 13 bankruptcy. Just like in Chapter 7 bankruptcy, medical debts are considered unsecured debt. However, since Chapter 13 means that you are considered able to pay at least some of your debts, the unsecured medical debt isn’t completely wiped out like with Chapter 7. You are placed on a payment plan that pays a percentage of your unsecured debt. The amount you must pay depends on your income, expenses, and nonexempt assets.

While finding yourself in a position with unpaid medical debt may be out of your control, there are some things that you can do which may help the situation.

  1. Communicate. Talking to the medical collector who is trying to resolve the debt can go a long way. Don’t ignore their calls, and don’t ignore the bills that come in the mail. It will not just go away. You can also communicate with your doctor or the hospital. Contact the attending physician or the hospital’s billing department by letter or in person. Be honest about your current financial situation and see if they can cut down your bill to something more affordable. 
  2. Find allies. If you have unpaid medical bills that you believe should be covered by your employer’s group health insurance, find out who is in charge of your case and talk to them. Your first ally is the benefits administrator in your human resources department at work. If you have an individual health insurance plan you purchased on your own, your ally is your health insurance agent. These individuals should be on your side and will likely help you however they can.
  3. Be creative on payments. You should do what you can to pay your bills back, but this does not mean you have to pay everything at once. Ask the hospital if it has a sliding scale for payments that will adjust the amount you pay based on your gross income and other factors. You can also request that the hospital billing office consolidate all your medical bills into one statement and one monthly payment. Be sure you do not put your medical debt on your credit card or take out a loan from the bank. These will likely accrue high interest rates and may make your debt worse.
  4. Set up an emergency fund or health savings account. If you have gone through a situation involving unpaid medical expenses, you don’t want to go through it again. When you are back up on your feet, create an account that will safeguard you from a similar situation in the future. Be sure you add to this account as often as you can, and don’t take money out of it for any reason other than a medical emergency.

If you are burdened by excessive medical debt and are looking for financial relief, the bankruptcy lawyers at the Law Office of W. Thomas Bible, Jr., are here to offer our experienced legal guidance. 

Discover Tom Bible Law in Chattanooga, TN

If you are struggling with excessive debt and looking for a sound solution, the attorneys at Tom Bible Law, can help you explore your legal options. We have helped numerous clients from Chattanooga and throughout Tennessee and North Georgia achieve their debt relief goals by guiding them through the bankruptcy process. We work with every client personally, giving each and every bankruptcy case the time and attention it needs. We understand the financial pressures our clients are facing and work to resolve their debt problems in a favorable, cost-effective manner. Our bankruptcy lawyers have more than 50 years combined experience and are here to help. Call us today at (423) 690-7712 or drop us a note here.

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