Medical Debt and Bankruptcy

Posted By Gary Phillips on Jul 24, 2017 | 0 comments


The average person can accumulate debt because of many reasons, ranging from the understandable like unexpected expenses to inexcusable like reckless credit card use. One of the most common causes of bankruptcy is medical debt, which is understandable, because it usually involves a huge amount of money that an average person will find hard to pay back.

What a bankruptcy case can do with your medical debt will depend on what kind of bankruptcy you qualify for. According to the website of Erin B. Shank, P.C., an average person may go for either Chapter 7 or Chapter 13 bankruptcy. One has advantages over the other.

Bankruptcy

In the event of a bankruptcy, all your debt will be divided into categories, such as secured debts and unsecured debts. Examples of secured debts are mortgage and car loans, and anything else that has collateral, while unsecured debts are those that do not have collateral. Unsecured debts are further categorized into priority and nonpriority general unsecured.

Priority debts are obligations, like alimony, child support, and taxes, while nonpriority general unsecured debts are those that can be wiped out, like credit cards and medical bills.

Chapter 7

In Chapter 7 bankruptcy, the trustee takes some of your nonexempt assets, sells them, and uses the proceeds to pay creditors. Your discharge can clear your medical debt, along with other nonpriority general unsecured debts, like those in your credit cards. However, it is important to note that you should still qualify for Chapter 7 first, meaning that your income should be low enough.

Also, a low enough income does not necessarily mean that Chapter 7 is the right kind of bankruptcy for you. Chapter 13 has its own benefits.

Chapter 13

In Chapter 13 bankruptcy, your general unsecured debts, including your medical bills, are bundled into a repayment plan. This plan is often adjusted in a way that makes the payment less financially stressful, and this is usually calculated having your income, expenses, and the amount the creditors would have received if you have filed for Chapter 7 instead, in mind. After completing the payment period, which often just pay a percentage of the total amount of debt, the remaining balance is discharged.

The good thing about Chapter 13 is the fact that you are able to keep your properties. The most important things about bankruptcy is knowing your current situation and bankruptcy options and weighing the pros and cons of these options.

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