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Can You File Bankruptcy on Medical Bills?

When you have medical bills that are piling up, it can feel overwhelming and never-ending. This is why many people look to see if they can file bankruptcy for medical bills. Since medical bills are almost always considered an unsecured debt, they can be included in a bankruptcy filing.

According to the American Medical Association, 62% of all bankruptcies are attributed to medical bills. The AMA also found that 92% of those who filed for bankruptcy had more than $5,000 in medical bills. With statistics like these, it’s important to know where your medical bills stand if you are considering filing for bankruptcy. 

Bankruptcy for Medical Bills

If you’re thinking about filing bankruptcy for medical bills, you may be wondering does bankruptcy clear all debt?

Since medical bills are usually considered an unsecured debt because the borrower does not provide any collateral for the loan, they can usually be discharged during bankruptcy. When the debt is discharged, the borrower is released from any personal liability on the debt. The creditor is also prohibited from taking any action to collect the debt. 

While “medical bankruptcies” don’t exist, the type of bankruptcy you file will determine what if any money you need to repay.

Chapter 7 Bankruptcy and Medical Bills

If you decide to file for Chapter 7 bankruptcy, you likely will not have to pay any of the medical bills that you owe. Under Chapter 7 bankruptcy, the debtor does not make any payments to their creditors. Non-exempt assets may be liquidated to pay back the debts.

When assets are exempt, the borrower will not have to sell the asset as a condition of bankruptcy. Many times people file Chapter 7 bankruptcy and don’t lose any assets at all. 

While Chapter 7 can discharge medical debts, it may not be for everyone. Here are some things to remember about Chapter 7 bankruptcy:

  • To file for Chapter 7 bankruptcy, your income must be below your state’s median for a household of your size. A presumption of abuse arises if your income is above your state’s median, but you can overcome the presumption of abuse in the event you pass the second portion of the means test.
  • Some of your property may be liquidated to pay off creditors.
  • The process can take up to six months. Once the bankruptcy is final, your debts can be discharged.
  • Chapter 7 bankruptcy stays on your credit report for 10 years.

If those terms sound agreeable, then Chapter 7 bankruptcy may be right for you. If not, you may want to consider filing Chapter 13 bankruptcy for medical bills and other debts.

Chapter 13 Bankruptcy and Medical Bills

If you decide to file for Chapter 13 bankruptcy, there will be a payment plan to repay your debts. The plan will detail how the borrower’s income will be used to pay medical bills. All bills, including medical bills, will be combined, and paid based on the debtor’s disposable income. This will likely be less than what is actually owed. The difference is forgiven with unsecured debt. If the amount is less than what is actually owed, the difference will be discharged.

Under Chapter 13 bankruptcy, each creditor will receive a pro-rated portion of what they’re owed. This includes medical bills. 

Here are some other things to keep in mind about Chapter 13 bankruptcy:

  • Debt cannot exceed certain levels.
  • You must have a steady income to repay your loans.
  • Chapter 13 takes longer and can stretch out over years, not months, due to the repayment plan.

Although all medical debt may not be completely forgiven under Chapter 13 bankruptcy, paying less than what was originally owed is often better for some people.

Final Thoughts

When medical bills are mounting and you are having trouble paying them and other debts, you may want to consider filing for bankruptcy. Your personal circumstances will determine whether Chapter 7 or Chapter 13 bankruptcy is best for you. Consulting a bankruptcy attorney can help you determine which path to take.

Do You Need a Bankruptcy Attorney?

If you have medical bills that are mounting and are considering filing for bankruptcy, let our 13 years of experience in bankruptcy law guide you in the process. Call us today at  (954) 922-2283 to schedule a free consultation with a Florida bankruptcy attorney.

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