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Every year millions of Americans struggle with healthcare-related bills. Unlike the purchase of a home or a car, getting sick is not really something we can plan and budget for. Simply being underinsured or having no insurance at all makes an unplanned bout with a longterm illness or hospitalization a financial burden. In fact, approximately 20 percent of Americans have crippling medical debt. An unfortunate reality in this country is that medical debt is one of the most common reasons people seek bankruptcy relief. Studies show that medical debt is the primary reason for more than 60 percent of bankruptcies filed in the United States.

There is no such thing as a “medical bankruptcy”, therefore in order to get your medical debt discharged, you will need to file for chapter 7 or chapter 13 bankruptcy. Medical bills are considered the same as credit card debt, old utility bills, and personal loans. Because of this, filing for bankruptcy will give you some relief from your medical bills. It is important to remember that when you file for bankruptcy, you cannot just limit your bankruptcy filing to your medical debt. Bankruptcy does not allow you to pick and choose which debt you wish to pay.

How Do Medical Bills Affect Your Credit?

Your medical history is not part of your credit report, but past due medical bills will show up on credit reports and can affect your credit score. A collection agency may purchase your debt from the hospital or clinic and begin pursuing you for the unpaid balance. 

However, a rule introduced in 2017 has made it so the three credit bureaus are no longer allowed to report medical debt until they are at least 180 days old. This gives people with medical debt at least six months to resolve any insurance or billing issues. In addition, during this time, individuals can make payment arrangments before past due balances are reported.

After six months, the debt will become a part of your credit report. However, new FICO and VantageScore formulas do not weigh late payments on medical collections as heavily. In some instances, this debt may not count at all if the collection is paid in full.

But if you have a significant amount of medical debt, arranging a payment plan may not be an option. This can, in fact, lead to major blows to your credit report. This is because too much outstanding debt, which is often the case for medical bills, has significant negative effects on your credit report.

How does Bankruptcy Treat Unsecured Debt?

A debt not backed by an underlying asset, such as a house or a car, is an unsecured debt. Therefore, like credit cards or loans, unsecured debt includes medical bills. Both chapter 7 and chapter 13 bankruptcies have different ways of dealing with unsecured debt.

How does a Chapter 7 Bankruptcy Filing Affect my Medical Debt?

Chapter 7 bankruptcy is sometimes called “straight” or “liquidation bankruptcy. By design, a chapter 7 bankruptcy allows a filer to get a fresh start. The process wipes out most of your debt, and in return, the bankruptcy trustee sells off your nonexempt property in order to provide partial repayment to creditors. A chapter 7 bankruptcy can take anywhere from four to six months.  At the end of this time, you’ll receive a discharge, or forgiveness, of your debts.

Unfortunately, not everyone is eligible to file for chapter 7 bankruptcy. However, even if you do not qualify for a chapter 7 bankruptcy, you may file for a chapter 13 bankruptcy.

How does a Chapter 13 Bankruptcy Filing Affect my Medical Debt?

Chapter 13 bankruptcy, on the other hand, allows you to keep your property and repay your debts. As a result, this form of personal bankruptcy typically lasts anywhere from three to five years. Chapter 13 bankruptcy divides debt into several categories: secured debt, priority unsecured debt and general unsecured debt. How much you pay toward each unsecured debt depends on factors such as your disposable income and what is in the best interest of the creditors.

Disposable income. All of your disposable income must go toward your chapter 13 plan. The amount unsecured creditors get depends on how much money you have left over each month after paying allowed expenses, secured debts and priority claims.

The best interest of the creditors. Unsecured creditors must get what they would receive under a chapter 7 bankruptcy filing. Essentially, you’ll pay them the value of the property you cannot shield with a bankruptcy exemption.

Can My Doctor Drop Me if I Discharge My Medical Bills in Bankruptcy?

The bankruptcy process requires you to list all of your creditors, including any medical debt. A doctor may choose to terminate the doctor-patient relationship and refuse to provide services for non-payment of a debt. However, a doctor must terminate this relationship in the correct way. Otherwise, your doctor may be accused of patient abandonment.

Many doctors understand that when a patient files for a bankruptcy, it is because they are dealing with serious financial burdens. Doctors also realize that while medical treatments are typically straightforward, figuring out how to pay for said treatment is not nearly as clear. They will typically continue to work with you so long as you agree to pay your debts moving forward. In addition, there are no laws that prevent you from paying old debts to your medical provider when you’re financially able to do so.

However, there are some medical providers who won’t do business with you anymore. If this happens, you can always find a new provider.  

The Carlson Law Firm Can Help

Medical bills can quickly become a financial burden and create stressful situations in an already difficult time. Our compassionate award-winning bankruptcy attorney Vicki Carlson can help relieve that stress by providing excellent legal representation and guidance through the bankruptcy process.

The Carlson Law Firm bankruptcy team is ready to take your call. Contact us to schedule a free consultation today.

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