One of the major reasons why Americans go bankrupt is caused by medical debt. Do not beat yourself up thinking of how to make ends meet in the midst of mounting medical bills. You are not alone. Fact is, huge medical expenses account for the personal bankruptcies filed in the U.S. In a recent study, an estimated 66.5% of all bankruptcies are caused by health-related expenses, followed by unaffordable mortgages (45%) and spending or living beyond one’s means (44.4%). Having health insurance is helpful but usually not enough to pay for medical bills. The rising healthcare costs in the country contributes to one of the biggest expenses Americans have to pay. According to CNBC, Americans spent $3.4 trillion on medical care in 2017. With the average healthcare cost per person reaching $10,345 in 2016, experts predict that figure will increase to $14,944 in 2023.

Medical DebtBecause medical conditions like diabetes and heart disease are increasing, many also have to contend with the rising medical bills. For other people, the special medical needs of a sick loved one can also put a strain on one’s finances. Hospice care for retirees and senior citizens can also be a burden and can take a big chunk out of retirement savings. Not to mention the financial obligations of keeping up with auto loan and mortgage payments.

The list of financial struggles seem endless and the questions loom at the back of your mind: Will I ever get out of this rut? Is filing bankruptcy an option to cover medical bills?

Well, not to worry because…Yes! Bankruptcy protection can cover medical bills and similar debts accrued from medical care. When you file for bankruptcy, the bankruptcy court instigates an automatic stay to stop all collection activities of your creditors. As such, it also eliminates additional stress caused by debt collectors hounding you to pay your debts. Another advantage of declaring bankruptcy is that you can save your home because bankruptcy freezes foreclosure actions.

Bankruptcy for Medical Bills

There are several bankruptcy chapters that may be filed by individuals and businesses. However, there is not a personal bankruptcy tailor fitted for medical debt. Unlike priority debts such as tax obligations and student loans which are usually not discharged in bankruptcy, medical debt is categorized as unsecured debt. Unsecured debts include credit card debt, old utility bills, personal loans, and cash loaned by friends and relatives. All these debts are treated the same way under the bankruptcy code. As such,  if you intend to file a bankruptcy case in order to have your medical debt discharged, you need to bear in mind that all your other unsecured debts will be wiped out too.

Disclosing information

You need to be forthright or honest when disclosing information about your financial affairs. Bankruptcy laws intend to be fair to all concerned, especially to debtors and creditors alike. As such, when you fill out your bankruptcy petition, you need to enumerate all your debts, property, and real estate. You also need to declare important financial information such as income and expenses, assets and debts, and property transfers. You will also be required to provide supporting documents to the bankruptcy trustee to make sure that the information you disclose is accurate. Any false declaration or misinformation may put your bankruptcy case in jeopardy and result in dismissal.

As mentioned, there are several bankruptcy chapters with which your medical debt, as unsecured debt, can be wiped out.

A Choice Between Personal Bankruptcies

Chapter 7 and Chapter 13 are the two types of bankruptcies for individuals. Both have certain criteria to qualify.

  1. Chapter 7 is the most basic type of bankruptcy. It involves liquidation of assets, allowing the debtor to wipe out debts and get a completely fresh start.  While it wipes out most unsecured debts, including medical debt and credit card debt, not all debts in a bankruptcy case are dischargeable. Student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes, and child support and alimony,  cannot be discharged. In some instances, students loans may be discharged but only if “undue hardship” has been proven.

However, Chapter 7 bankruptcy is not for everybody. In Arizona, Chapter 7 bankruptcy is suitable for income-qualified debtors with little or no assets with which to pay off their debts. To qualify, your family income and expenses will be subjected to something called the “means test.” If your income is higher, your best option is to file a Chapter 13 bankruptcy.

If you didn’t have the financial resources to start with, a Chapter 7 bankruptcy may be your best option. Once you have complied with all the requirements of a Chapter 7 bankruptcy, your remaining medical bills will normally be discharged.

  1. Chapter 13 bankruptcy works for individuals who make too much money to qualify for Chapter 7 bankruptcy, or for those who would stand to lose property that they prefer to keep. Chapter 13 bankruptcy is used to be called a wage earner plan because relief under it was only available to individuals who earned a regular wage. Your payment amount will be based on the debts you have and your disposable income. Chapter 13 filers with a regular income are able to restructure their obligations to repay their debt over time. Instead of totally wiping out debt, the debtor comes up with a repayment plan that stipulates fixed installment payments.

If you have enough money to pay the usual bills, but cannot afford to settle your medical debt, Chapter 13 bankruptcy’s repayment plan will work for you to work out a schedule of payments for your debts, depending on your income.

Regardless of the option you take, you rest assured that you may have your medical debt discharged since it is classified as unsecured debt. The best gauge on choosing between Chapter 7 or Chapter 13  is your cash flow.

Credit Counselling

All individuals filing for bankruptcy are required to take two courses before receiving debt relief: a credit counseling course and a debtor education course. The first course—the pre-filing credit counseling class—taken before you file for bankruptcy helps you make sure that bankruptcy is right for you. The second course – the post-filing debtor education course (or “second” class)  is taken after you file your bankruptcy. The second course will provide you with financial management tools that you’ll be able to rely on after your bankruptcy is over

Perfect Timing

There is no “perfect” time, but there is a good rule of thumb to keep in mind when you’re asking yourself the question: When should I file for bankruptcy?

When you file for bankruptcy here in Arizona, you can be assured that all qualifying debt at the time of the filing will be included in your discharge or repayment plan. So you need to carefully consider whether or not there are other upcoming huge bills that could disrupt your filing. You need to be aware that incoming medical bills AFTER you file your bankruptcy petition will no longer be included for possible discharge or repayment and you will need to take full responsibility in paying for them.

Having said that, timing is of utmost importance and careful planning is necessary to make sure that any huge amount of debt that you can reasonably project to accrue in the future is considered. A prognosis about the medical condition of a loved one is one gauge of any impending costly medical procedure that may be charged to you. In such cases, it will be best to wait for the procedure to be over and one with before your file for bankruptcy.

Realistically speaking, it may seem far-fetched to wait for the right time when you are anxious to relieve yourself of your financial woes. But there is a gem in waiting to file until you are sure that you include the bulk of your debt in your bankruptcy petition. The reason why you need to be cautious of the timing is that there are strict rules on when you can seek another discharge through bankruptcy. There are specific waiting periods before you can file for bankruptcy a second time. For a Chapter 7 bankruptcy, you would need to wait another eight years before you can file again. If you filed for a Chapter 13 bankruptcy, your waiting period would be four years.

Bankruptcy lawyers as your partners to a fresh start

When life takes a turn for the worse due to unexpected situations such as job loss or sudden illness, it is best to look at the bright side of debt relief that bankruptcy provides. It is also of paramount importance to seek advice from experienced Arizona bankruptcy attorneys who are willing to answer your questions and examine your case. Our objective is to help you come up with viable solutions to your financial situation.  Call us at Phoenix Fresh Start Bankruptcy for a free initial consultation.