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How medical debt is handled in bankruptcy

On Behalf of | Oct 14, 2021 | Chapter 7, Medical Debt

Bankruptcy provides some debt relief for consumers in Rogers, Arkansas, who see no other option. Stats report two-thirds of bankruptcy cases are filed because of medical debt. However, some consumers may wonder if they could file for just medical debt.

Medical debts in bankruptcy

Chapter 7 bankruptcy discharges unsecured debts by selling nonexempt property through a trustee. Nonexempt property is nonessential items not needed for living, such as jewelry, a vehicle home, or luxury vehicles. Bankruptcy removes certain unsecured debts or debts that don’t require debtors to place collateral, including medical debt.

A consumer cannot file a bankruptcy case for a single debt, but medical debt can get discharged with other unsecured debts if they complete requirements. However, Congress passed the Medical Bankruptcy Act of 2021 to make filing bankruptcy simpler for debtors who struggle to pay medical debt.

Other alternatives

Chapter 7 requires the consumer to pass a means test, which compares the debtor’s average income to the state average. If the debtor fails the means test, they must not file or file Chapter 13, a court-approved plan over three to five years. The medical debt is worked into the repayment plan, but the consumer needs sufficient income to make payments.

If a consumer doesn’t have other debts or can’t file bankruptcy, some medical facilities offer payment assistance for qualifying patients. Debtors with few assets or little income can be judgment proof from creditors and may not need to file bankruptcy. The statutes of limitation in most states prohibit creditors from seeking judgments against debtors after a time frame, which differs by state.

Bankruptcy does impact credit scores for several years, so consumers should consider it carefully. It may be worth the time talking to a financial advisor, especially if they have only one type of debt.