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How Are Medical Bills Handled In Bankruptcy?

Although it may surprise some, the top reason for filing bankruptcy isn't due to credit card debt or mortgage troubles, it's medical bills. An estimated two million people are expected to file in a recent year, largely due to health issues. Whether they have health insurance or not, and whether they ultimately choose bankruptcy, it's estimated that 20% of adults between the ages of 19 and 64 have trouble keeping up with their medical bills. In order to keep health insurance premiums affordable, many have chosen high deductibles, which means big bills even before coverage kicks in.

Few Plan On Medical Emergencies

Even when someone is diligent about keeping their budget, costly, unexpected medical bills are hard to plan for, but like any other creditor, hospitals and clinics expect to be paid for the services they provide. Entire departments are dedicated to getting money out of patients, even when paying those bills constitutes a hardship. The added financial pressure can compound health issues, making the problem even worse.

The Decision To File

The decision to file bankruptcy for medical bills is not one most people take lightly. Since medical bills are unsecured debt, however, it is possible to get these debts discharged through a Chapter 7 bankruptcy, or get payments reduced through a Chapter 13 bankruptcy. Although the filing process can take some time, taking the first step with your attorney can at least activate the automatic stay and allow you to get your bearings while you stave off collection calls as well as other efforts, such as wage garnishment.

Chapter 7 Vs. Chapter 13

Having medical debts discharged through Chapter 7 bankruptcy tends to be the least complicated for those who qualify. To determine whether or not this option is possible, the court uses a "means test" that evaluates the filer's disposable income and assets. The exact amount varies depending on where the filer lives, but it should be less than the median amount for their area. The filer is allowed to keep a modest amount of possessions, and anything beyond this is sold and divvied up to creditors.

Chapter 13 bankruptcy has more rules, but can be a good option for those who don't qualify for a Chapter 7 bankruptcy, or who want to hold onto more assets than Chapter 7 permits. Filers do need to watch for debt limits for Chapter 13. Unsecured debts, like most medical bills need to stay under approximately $380,000 in order to remain eligible. This may seem like a lot of money, but if serious illness strikes, these expenses can add up fast. Attempting to pay off these bills with credit cards can also backfire, since some credit card companies will argue that debt accrued in a short period of time with little or no payments made may have been acquired without intent to pay.

If you're medical bills are getting to be too much for you to handle, filing bankruptcy might be the solution you're looking for. A qualified attorney can help you review your options so you can make an informed decision on whether or not it is the right choice for you.

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