An accident, sudden illness, emergency surgery or a chronic medical condition. The bills from any of these medical situations can be insurmountable and overwhelming for many families.
Rising medical bills are expected to push 1.7 million American households into bankruptcy this year—making health expenses the single biggest cause of such filings. This outpaces bankruptcies due to credit-card bills or unpaid mortgages, according to a recent study by Nerd Wallet Health, a division of the price-comparison website, analyzed data from the U.S. Census, Centers for Disease Control, and the federal court system. They also reported that even outside of bankruptcy, about 56 million adults—more than 20 percent of the population between the ages of 19 and 64—will still struggle with health-care-related bills this year. So in short, you are most definitely NOT alone in your medical bill financial stress. Let’s look at what bankruptcy can potentially do for you to resolve your medical bills.
How are medical bills treated in a bankruptcy?
Depending on the type of bankruptcy you qualify for (either Chapter 7 or Chapter 13 bankruptcy), you should be able to discharge your medical obligations. In bankruptcy, medical bills are considered general unsecured debts just like your credit cards. This means that medical bills don’t receive priority treatment and can easily be wiped out by filing for bankruptcy.
If you file 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 in Chapter 7 bankruptcy. However, to qualify for a Chapter 7, your disposable income must be low enough to pass the means test which is one of the determining factors of your eligibility.
If you file Chapter 13 bankruptcy, medical bills are lumped in with your other general unsecured debts in your repayment plan. The amount you must pay general unsecured creditors depends on your income, expenses and liquidation analysis of your nonexempt assets. Each creditor then receives a pro rata portion of the total amount going towards these debts in your plan. This is typically only pennies on the dollar. As with all bankruptcies, it is best to consult an expert bankruptcy attorney who can guide you as to which type of bankruptcy will be best for your situation or whether it is needed at all.