The healthcare industry has been in a bad position before the Affordable Care Act (ACA, known unofficially as Obamacare), and no matter the political lean on the subject, the situation isn't much better in 2017. Overwhelming medical bills are a major cause of individual bankruptcy claims, so know that you're not alone in taking this path. Here are a few details about how to go about a medical bill bankruptcy attempt and some ways to set yourself up for success afterwards.
How Are Medical Bills Categorized In Bankruptcy?
Medical bills listed as general unsecured debts. These debts aren't covered by a specific law or guarantor or by putting up your belongings as collateral.
This means that your medical bills can be wiped clean by filing for bankruptcy. It's key that if you begin bankruptcy proceedings, you need to commit to following the advice of a lawyer and avoiding any kinds of payment or promises. There are many situations that can turn your medical bills into more than just an unsecured debt.
Some people attempt to pay off their debts in a last-ditch effort by applying for loans and putting belongings up as collateral. This shows that you're willing and able to make payment, which can complicate your bankruptcy filing. It also puts your belongings in jeopardy, as you're essentially burning away money that may not have to be paid in addition to paying interest to the loan servicing group.
How Are Medical Bills Removed In Bankruptcy?
Two major methods of bankruptcy for medical bills are chapter 7 and chapter 13 bankruptcy.
With chapter 7, all unsecured debts are removed when your debt is discharged. There is no debt limit when the discharge is approved, so you don't have to worry about which debts to take on in order to handle the biggest debts.
The catch is that you have to pass a means test. A means test proves your income and ability to pay, as you can't simply ask to have the debts removed if there's a reasonable way for you to pay. This is why it's important to avoid making unplanned payments, taking out loans, asking others for money to help your debt situation, or putting up your belongings for collateral. It brings attention to your ability to pay, and it can cost you even more in legal fees later.
Chapter 13 bankruptcy is more of a debt reduction system. Your debts are reorganized in a way that could give you a lower payment rate, and all creditors are given a pro rata amount that they can receive. You're still paying back the money, but with less of a hectic scramble to answer phone calls or juggle individual creditor demands.
There are limits on how much you can place into chapter 13 bankruptcy, and it's still based on a certain income threshold. To figure out which option is best for you, or to find ways to qualify for the best option, contact a bankruptcy legal team, such as Tim George & Associates.