5 Things To Know About Medical Debt and Bankruptcy


Even though someone may have insurance, sometimes a major event occurs for which they are still underprepared. Maybe there was a skiing accident that led to a compound fracture; maybe there was a diagnosis of cancer. Either way, major surgery and medical costs could rain upon your carefully budgeted household.

Healthcare Costs Cause Serious Financial Problems

At the time of a health emergency, many people focus their healthcare on the moment not necessarily looking toward the future. This oversight has led to 26% of adults in an NPR study saying that these healthcare costs have caused a serious financial problem for their family.

Although 44% set up payment plans through their provider, just over 4 out of 10 spent all or most of their personal savings to pay for these costs. Only 7 people out of 100 took advantage of Bankruptcy Protection.

Almost 3 in 10 are unable to pay even for their basic necessities, 1 person in 4 have taken on high amounts of credit card debt, and just under 1 in 5 have taken out a punitive and burdensome loan. These statistics present a trend towards greater bankruptcy filings in the future.

Crowdfunding is Not the Answer to Medical Debt

According to NerdWallet, on average 4 out of 10 crowdfunding campaigns across the sites GiveForward, Plumfund, FundRazr, and Red Basket were designed for covering medical costs but just over 1 in 10 of those campaigns were fully funded.

These results mean that even with the best intentions and additional outlets to try to alleviate unexpected medical costs, many people wind up with no options. Although crowdfunding may appear to be a way to remove some of a family’s financial burden, most often people are still required to take on additional debt which often leads to filing for bankruptcy protection.

Medical Debt is Considered an Unsecured Debt

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

Medical Debt and Chapter 7 Bankruptcy

Under Chapter 7 bankruptcy, medical debt is treated as a nonpriority unsecured debt. Bankruptcy laws prioritize debts. 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. However, in order to file for Chapter 7 bankruptcy protection, you must meet eligibility requirements that declare your income and debt levels prevent you from realistically paying these bills to conclusion. A Government-mandated formula determines which folks will qualify for this protection.

Medical Debt and Chapter 13 Bankruptcy

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. This means that you will be placed on a payment plan that pays a percentage of your unsecured debt.

If you would like to learn more about whether Chapter 7 or Chapter 13 bankruptcy can help resolve some of your medical debt issues, call today for a free consultation at 817.381.9292 to speak to an experienced Texas bankruptcy lawyer at the Law Office of Marilyn D. Garner.

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