Have you heard of the term “medical bankruptcy”? Probably not. That is most likely because it is not an official chapter of bankruptcy that the government offers relief for.
As the cost of healthcare increases in the United States, many Americans find themselves under an enormous weight of debt due to medical bills, many will turn to filing for bankruptcy as a way to get some sort of relief.
There are many misconceptions when it comes to medical bankruptcy, so let’s take a look at the facts including everything you need to know before you consider taking this approach.
What is Medical bankruptcy?
While it is not a technical legal term, medical bankruptcy is a term that has become more frequently used to describe situations where overwhelming amounts of financial debt have incurred due to mounting medical bills causing people to file bankruptcy.
Even those who have health insurance can find themselves heavily burdened with debt as a result of procedures and medications not covered by their policy. As a result, it has become more common to see people seeking out a resolution through bankruptcy. Medical debt can be discharged through either Chapter 7 or 13 bankruptcy.
How and When to File
Although you cannot specifically file for medical bankruptcy, you can have your debt discharged through Chapter 7 or 13 since neither require specific reasons for filing and any unpaid medical bills eventually become medical debt.
Both chapters have specific requirements and criteria you must meet in order to be eligible. Chapter 7 allows your debts to be discharged following a court liquidation of your non-exempt assets, while Chapter 13 will discharge after you complete a repayment plan for a period of 3-5 years.
It is unknown just how many cases of bankruptcies filed are due to medical debt, but it is clear that it is a substantial number and one that continues to grow as a serious issue in the United States.
Are There Alternatives to Bankruptcy for Medical Debt?
It is never fun to deal with debt collectors, however, many times, medical creditors can be much easier to work with in terms of repayment. If considering bankruptcy is primarily due to your medical debt, you may want to attempt to work with the creditors first, they are typically more willing to work with you on a repayment plan or even possibly lowering the amount due.
Most medical offices try to hold onto a bill within their department as long as possible before submitting it to a credit agency. Because medical creditors don’t typically belong to reporting agencies, it is less likely to damage your credit like other debts.
This may provide some reasons for you to attempt to work with your medical providers prior to deciding to file for bankruptcy. If you are unsure of what is the best option for you and your situation, a bankruptcy lawyer may offer some insights for you to better understand the options available.