Would you like to know about medical debt relief? Does bankruptcy clear medical debt in the United States? Keep reading. In this article, we’ll tell you what happens to your medical debt if you file for bankruptcy. You will also learn what types of bankruptcy exist, and everything you need to know if you are considering filing for bankruptcy.
It sounds funny, but hard to believe, filing bankruptcy has helped millions of Americans ease their debt burden. Filing for bankruptcy is an opportunity to have a fresh financial start. At Ortiz & Ortiz we have a team of bankruptcy lawyers in New York to assist you in this process.
Does bankruptcy really clear medical debt in 2022?
Today in the United States, the health care system is financially complex. In most cases, family budgets are not prepared for a medical emergency expense. Insurance only covers part of it. Medical bills are usually for large sums of money.
Medical bills are considered the same as credit card debt, old utility bills, and personal loans. Because of this, effectively filing for bankruptcy will give you relief from your medical bills.
An important point to consider is that by filing for bankruptcy, you will not be able to limit your bankruptcy exclusively to your medical debt. So does bankruptcy really clear medical debt in the United States? Bankruptcy is general, and it does not allow you to choose what debt you want to pay.
Is there a “medical bankruptcy”?
There is no official legal category of “medical bankruptcy.” However, some types of bankruptcy that you may file can be helpful in settling health care bills. So keep reading to get a clear answer on how does bankruptcy clear medical debt.
If you decide to file for some type of bankruptcy, you should consider that the bankruptcy process will encompass all your debts. From the doctors, to those of your credit cards. In calculating your total obligations, medical debt will be just one factor to consider.
Note: Take a detailed look at all types of bankruptcy that exist in the United States. Read about Debt Consolidation versus Bankruptcy.
What type of debt is medical debt?
In a bankruptcy case, all of your debts fall into one of three categories:
- Secured debt: Refers to the type of debt that is backed by a property. The most common secured debts are auto loans and mortgages.
- Unsecured debt: This type of debt is not related to a specific property. Unsecured debt includes, for example: credit card debt, personal loans, student loans, etc.
- Priority debt: It is a type of unsecured debt. Priority debt receives special (priority) treatment under the Bankruptcy Code. Some examples of this type of debt are: tax debts, child support and alimony.
Medical debt is classified as unsecured debt.
Note: Read more about how to find out if you are in debt in the United States.
What type of bankruptcy should I file to eliminate my medical debt?
To know what type of bankruptcy does clear medical debt let’s take a look at the basics.
There are different types of bankruptcy that people and companies can file in the United States. But two options are the most useful for eliminating medical debt. Here we explain everything you should consider about them.
Bankruptcy Chapter 7
The type of bankruptcy that Chapter 7 Bankruptcy allows is better known as “liquidation bankruptcy.” This is because the court liquidates (that is, sells) your assets to pay off creditors and lenders.
- Once the court liquidates your assets and pays your creditors and lenders, it discharges any remaining balance.
- Asset liquidation can seem like an extreme and terrifying alternative. However, the reality is that the court will not sell everything you own.
- Personal assets such as your home, retirement savings, personal items such as clothing, and others are exempt from the settlement.
This type of bankruptcy allows you to complete the debt settlement process quickly. Once the process is complete and the court has settled your accounts, you can start your financial life anew.
What debts can be erased with Chapter 7 and which ones cannot?
Generally, Chapter 7 bankruptcy allows you to erase debts known as “dischargeable” debts. Some examples of this type of invoice are:
- Medical bills.
- Credit card debt.
- Payday and personal loans.
- Vehicle Loans.
- Utility bills.
- Debts for failures in credit cards and debt collection agencies.
Another type of debt that Chapter 7 bankruptcy cannot erase is known as “non dischargeable.” The most frequent debts of this type are:
- Almost all student loans.
- Alimony and child support.
- Most tax debts and other penalties or debts that you owe to the government.
Note: Read more about Filing for bankruptcy Chapter 7.
Bankruptcy Chapter 13
Better known as the “wage earner’s plan,” Chapter 13 bankruptcy is an alternative to bankruptcy in the United States. This option allows people with fixed and regular income to create a payment plan for their debts. This plan may be to pay all or part of what is owed.
We already saw that Chapter 7 bankruptcy is about liquidating assets to pay off your debts before meeting any remaining balances. In contrast, Chapter 13 bankruptcy is about creating a court-ordered plan to pay off your debts. This alternative is designed for people with a certain level of income or assets.
So, here we highlight the most important points that stand out to Chapter 13 bankruptcy:
- As a debtor, you should propose a plan to pay your creditors in installments over 3 to 5 years.
- The length of this fee payment time is determined by a court based on your income.
- During the period of payment of fees approved by the court, better known as the repayment period, creditors cannot continue with collection.
- The payment plan is based on court approved expense categories that follow Internal Revenue Service (IRS) guidelines.
Note: Read more about Filing for bankruptcy Chapter 13.
Chapter 13 Bankruptcy is not always accepted by creditors
One might think that creditors will easily agree to a payment system for the debtor to pay off their debts. However, reality is different. In fact, the opposite is usually the case. Almost 70 percent of all Chapter 13 filings are discarded or converted to Chapter 7.
Many Lenders Prefer Chapter 7
For the lender or creditor, the ideal is to convert your filing to Chapter 7:
- Property or assets like your home or car can be quickly liquidated. This will allow you to pay your debts immediately.
- Chapter 7 allows creditors to get money quickly. Thus, future problems are avoided. This is because they will no longer have to expect smaller payments that the court would assign with Chapter 13 bankruptcy.
Main difference between Chapter 7 and 13 bankruptcy in 2022
Do you have questions about which type of bankruptcy you should choose? Still not sure if filing for Chapter 7 or 13 bankruptcy is better for you? It will depend on your personal circumstances which of them you can find more favorable.
These are the two most common programs to reduce or eliminate your debt.
The main difference between Chapter 7 and 13 bankruptcy lies in its method and whether the person has the means to pay the debt or not. That is, the key difference is in the income level of the debtor.
Although both bankruptcy options help you recover from debt, one is considered liquidation while the other is a reorganization.
The basic difference between the two:
- Chapter 7: Applies to most types of unsecured debt. The court appointed trustee will attempt to sell any significant non-exempt property to repay your creditors.
- Chapter 13: You will pay your creditors in whole or in part through a payment plan.
Note: Take a closer look at bankruptcy Chapter 7 vs 13.
What is the best time to file for bankruptcy for medical debt?
Deciding when to file for bankruptcy is always a tough question. Filing for bankruptcy is not right for everyone or for all situations. Here are some factors to consider:
- The amount of medical debt: Can you pay it off in a year with monthly payments?
- Your Total Debt: Are you juggling multiple debt payments every month?
- How Much Money You Make: What Kind Of Bankruptcy Can You File?
- Exemptions You Can Claim To Protect Your Property: Would You Lose Property When You File Bankruptcy?
It is critical that you analyze these factors to determine whether bankruptcy is the best option for you.
How Does Your Personal Bankruptcy Filing Affect Your Business?
The answer to this question will depend on the assets of your business. For sole proprietorships, Chapter 7 can be a great option that eliminates more debt.
Here small business owners can file Chapter 7 as individuals to eliminate that personal liability.
You can review our section of small business attorney in NYC for more information on this point. Tell us about your case and we will be delighted to assist you.
Does filing for bankruptcy ruin your reputation?
Filing for bankruptcy is an alternative that has given millions of people in the United States a new opportunity. It is an option that allows you to pay off your debts and start over.
The goal of bankruptcy is to give a second chance to people who, by mistake or circumstance, find themselves drowning in debt. The stigma it carries is not warranted. Bankruptcy is a valid financial and legal option and can bring many benefits.
Credit score after filing for bankruptcy
If you decide to file for bankruptcy, either to pay off your medical or other debts, this is generally what happens:
- Bankruptcy will lower your credit score.
- Your past debt history will not be erased even when the debt is canceled.
- You can get high interest rates as you are a risky borrower.
It is likely that it will be more complex for you to get new loans, both from credit cards and mortgages. You may get higher interest rates, but it won’t be impossible.
While it is true that bankruptcy affects your credit score, you should not forget that it helps you recover from your mounting debt. In other words, impairing your score may be in your best interest, if it improves your financial situation.
Do you have an estate plan? Are your assets safe? Call our estate planning attorney in New York today.
How to improve your credit score after bankruptcy?
We know that filing for bankruptcy has direct consequences on your credit score. Although filing for bankruptcy provides an opportunity for a fresh start for those who request it, it also implies this impact.
The truth is, getting a good credit score after bankruptcy will take time. There are no big shortcuts. The first step toward a better credit score is knowing and understanding your credit score; That means not just looking at your credit score, but getting a report on what is affecting your score.
If you want to increase your credit score quickly, there are many things you could do that would help:
- Find out what is affecting your credit score the most. Then you can review our list and see which options will have the most impact.
- Prioritizing the things that affect your score the most will give you the most boost in the shortest amount of time.
- The most important thing is to try to make payments on time. If you’ve fallen behind, don’t be alarmed. It is never too late to start.
- What you have done most recently will affect your credit score the most, so it is highly recommended to start with good credit habits as soon as possible.
- If your debt has become too big to pay off, consider that bankruptcy might be a good alternative for you.
- While filing for bankruptcy will lower your score and it will stay on your report for up to 10 years, it will also eliminate all of your current debts. Thanks to this, there will be no more delinquency notices on your account.
Note: Check out our complete article with all the recommendations on how to raise your credit score fast.
If I file bankruptcy to settle my medical debts: Will I still be able to receive medical treatment from my current provider?
It is very common for people with medical debt to worry about being able to return to their caregivers if they are eliminating debts owed to doctors, dentists or clinics. In most situations, you don’t have to worry.
- Most of the larger clinics or hospitals will continue to treat someone who has paid off a debt to them in bankruptcy.
- It is true that an individual doctor or dentist may not want to continue treating you if you pay off your debt in bankruptcy.
- The vast majority of health providers are companies that will not put this obstacle
- In the event that a physician chooses to terminate the physician-patient relationship, and refuses to provide services due to non-payment of a debt, he or she must do so in the correct manner. Otherwise, your doctor could be charged with patient neglect.
Many doctors understand that when a patient files for bankruptcy, it is because they are dealing with severe financial burdens. They will generally continue to work with you as long as you agree to pay your debts in the future.
In case the doctor or clinic no longer wants to see you, you can always find a new provider.
Non-bankruptcy options for medical debt
There are alternative ways to bankruptcy to pay off your medical debts. Here are some options: debt settlement, debt settlement programs, and assistance programs.
Medical debt settlement
Debt settlement is a relief alternative that allows you to settle a debt for less than the total amount you owe. Usually you make an offer to the creditor, lender or collection company for a percentage of what you owe. Then there is a negotiation process. In a positive case, a settlement agreement is reached, in which they agree to settle the remaining balance in the account in exchange for a partial payment.
This type of debt relief is most commonly seen with debts that are already past due due to non-payment. This can include medical bills, and other types of debts such as:
- Credit card debts declared uncollectible (charge-off)
- Accounts in collections, including unpaid debts, utilities, and mobile plans
- Private student loans
- Back taxes owed to the IRS
For those people who have several unpaid debts, and the negotiations would be with several companies, there are debt settlement programs.
What is a debt settlement program?
A debt settlement program is a type of professionally assisted debt settlement. You work with expert representatives who negotiate settlements on your behalf. First, they advise you in planning your financial status to ensure that you have the resources to make settlement offers. So once you have enough money to make an effective offer, they will negotiate for you.
A debt settlement program is generally the right solution if you have multiple debts that you need to pay off at once. This generally only applies to debt settlement for credit cards and collection accounts. Another characteristic that must be met to start a debt settlement program is having the resources to meet payment plans.
How Debt Settlement Works
Negotiating in debt settlement can work a little differently, depending on how you do it and who initiates contact. We recommend consulting with expert state-licensed debt settlement professionals.
Medical assistance programs
Ask about assistance programs. Most hospitals have assistance programs that, if you qualify, will provide free or reduced hospital care, depending on your income level.
For example, in some states, the Hospital Care Guarantee Program (HCAP) will cover the cost of medically necessary services. Additionally, there are non-profit hospitals that enjoy federal tax-exempt status. These can be ideal for you and other cash-strapped patients when it comes to medical billing.
This could apply to you. We recommend that you contact your hospital financial aid counselor for more information and to apply for coverage.
Note: If you are in debt read also: What happens if I am sued for debt and I cannot pay or can I go to jail for debt.
Ortiz & Ortiz helps you evaluate your case
Now you know the answer to how does bankruptcy clear medical debt. Any filing for bankruptcy in the US is a complex process and is rarely successful without an attorney. Our firm has experts with over 30 years of combined experience serving New York.
- We can help and guide you in filing for bankruptcy in New York.
- This will give you immediate protection from your creditors and will be a relief to pay off your medical debts.
Contact our bankruptcy experts. This will ensure that you comply with all applicable rules and regulations that govern bankruptcy proceedings.
Call us today so we can hear about your case and begin to develop an action plan to protect your assets, family, and your financial future.