Does Bankruptcy Clear Medical Debt?
Medical debt is one of the leading causes of personal bankruptcy in the United States. According to a survey conducted by the Kaiser Family Foundation, one in four Americans struggles to pay their medical bills. This can be especially challenging for those facing major illnesses or injuries, which often result in substantial medical expenses that can quickly add up.
Bankruptcy is often touted as a solution for those struggling with medical debt. However, many individuals are uncertain about whether bankruptcy can actually clear medical debt. In this article, we will explore the relationship between bankruptcy and medical debt and answer some frequently asked questions about the topic.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is designed to discharge or eliminate unsecured debts, including medical debt. To qualify for Chapter 7 bankruptcy, the debtor must meet certain requirements, including having a significant amount of unsecured debt and not earning enough income to pay off those debts.
While the bankruptcy process can be complex and time-consuming, Chapter 7 bankruptcy can offer relief from overwhelming medical debt. Once all of the debtor’s assets have been liquidated to pay off creditors, the remaining debt is discharged or eliminated. This means that medical debt from hospital stays, doctor visits, and other healthcare expenses can be eliminated through the Chapter 7 bankruptcy process.
Chapter 13 Bankruptcy
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy involves a repayment plan rather than debt discharge. In Chapter 13 bankruptcy, the debtor must prepare a repayment plan that outlines how they will pay off their debts within a certain time frame, typically three to five years.
While medical debt can be included in the repayment plan, it is not necessarily eliminated in the same way as it is in Chapter 7 bankruptcy. However, Chapter 13 can still be a viable option for those looking to manage their medical debt while keeping their assets, such as homes or vehicles.
Medical Debt and Bankruptcy: The Fine Print
It is important to note that not all medical debts are eligible for bankruptcy discharge. For example, if a debtor incurred medical debt as a result of fraud or intentional harm, that debt cannot be discharged through bankruptcy.
Additionally, some healthcare expenses may not be considered “medical debts” in the traditional sense and may not be eliminable through bankruptcy. For example, cosmetic surgery and elective procedures may not be eligible for discharge through bankruptcy, even if they were performed by a licensed healthcare provider.
FAQs About Bankruptcy and Medical Debt
1. Can I discharge all of my medical debt through bankruptcy?
Unless the medical debt was incurred under fraudulent or intentionally harmful circumstances, medical debt can typically be discharged through Chapter 7 bankruptcy.
2. Can I keep my assets, such as my home or car, if I file for Chapter 7 bankruptcy?
It depends on the value of your assets and the laws in your state. Some states have exemptions that protect certain assets from liquidation in the bankruptcy process. Additionally, if you have a mortgage or car loan, you may be able to keep those assets if you continue to make payments on them.
3. Will bankruptcy hurt my credit score?
Yes, filing for bankruptcy can negatively impact your credit score. However, the impact may be less severe than the impact of carrying high levels of debt or missing payments on your debts.
4. Can I file for bankruptcy more than once?
Yes, it is possible to file for bankruptcy more than once. However, there are strict rules about filing for bankruptcy multiple times and the amount of time that must pass between filings.
Bankruptcy can be a viable solution for individuals struggling with medical debt. While the bankruptcy process can be complex, Chapter 7 bankruptcy can offer debt discharge for unsecured medical debt, while Chapter 13 bankruptcy can help individuals manage their debt while retaining their assets. However, it is important to understand that not all medical debt is eligible for bankruptcy discharge, and there may be limitations on the types of healthcare expenses that can be discharged. As with any major financial decision, it is important to consult with a qualified bankruptcy attorney before deciding to pursue bankruptcy as a solution for medical debt.
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Bankruptcy can help relieve individuals from overwhelming medical debt, though not all of it can be discharged. Chapter 7 bankruptcy can discharge unsecured debt, including medical debt, though the debtor must meet certain requirements such as owing a significant amount of unsecured debt and earning an income too low to pay that debt off. Chapter 13 bankruptcy involves a repayment plan, but medical debt can still be included. Not all medical debts are eligible for bankruptcy discharge if incurred through fraudulent or intentional harm. Bankruptcy can negatively affect the credit score, and individuals should consult with a bankruptcy attorney before pursuing bankruptcy.