Treatment of
Medical Debts
in a Bankruptcy
A Medical Debt is an Unsecured Debt
Treatment of
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Treatment of Medical Debts in a Bankruptcy
A Medical Debt is an Unsecured Debt
One of the primary causes of filing for a bankruptcy is medical debts. High health care costs and people without health insurance have led to an increase in the number of medical debts. In 2007, as per the American Journal of Medicine, 62% of people cited medical debts or income loss due to illness as the primary reason for filing bankruptcy. Since then it’s an ongoing trend.
Many debtors owe debts directly to laboratories, hospitals, doctors, dentists, out-patient surgery centers and other medical providers. These medical debts are classified as unsecured debts. This means that these debts are not secured by collateral (like a car or a house) which can be repossessed by the lender in case of default.
If medical debt is the reason for your filing bankruptcy, you must necessarily know the treatment of such debts in Chapter 7 and Chapter 13 bankruptcy.
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Medical Debt in a Chapter 7 Bankruptcy
Medical debts can also be wiped out in a Chapter 7 bankruptcy. These debts are treated as non-priority and unsecured debts in this type of bankruptcy. This means that these debts will not get any priority during the repayment of the debts to the creditors. In fact, if a portion of these debts is still left unpaid during bankruptcy, it will be eliminated at the time of the discharge. Also, there is no limit on the amount of medical debt that can be discharged in a Chapter 7 bankruptcy. Therefore, in case you are struggling with a large medical debt, a Chapter 7 bankruptcy may prove to be the best and easiest option to relieve yourself of this burden.
However, you will still need to pass the Means Test to qualify for a Chapter 7 bankruptcy. Even if you pass the Means Test, Chapter 7 bankruptcy may not be the best option for your significant amount of non-exempt assets. However, you will still have the option of Chapter 13 bankruptcy, in case you don’t find Chapter 7 bankruptcy in your best interest.
Medical Debt in a Chapter 13 Bankruptcy
Many people file for chapter 13 bankruptcy because of high medical debts. In this bankruptcy, the debtor has to pay some of his or her medical debts under the protection of a repayment plan. The rest of the portion of the medical debt gets discharged once the repayment plan period is over.
In Chapter 13 bankruptcy, the debtor can save and keep his or her property by paying the debts to the creditors under the protection of the repayment plan. However, the portions of the debt that needs to be repaid will depend on the kind of debt. In a secured debt, you will have to continue to make the monthly payments (like your car loan or mortgage) in order to keep the property with you. However, unsecured debts are not treated the same.
In an unsecured debt, a certain percentage of the debt must be paid through the repayment plan. That percentage will depend on different factors like your disposable income and what amount would your creditors get if you had filed a Chapter 7 bankruptcy.
Since medical debts are unsecured debts, only a portion of it must be paid through the Chapter 13 repayment plan. If you complete all the plan payments by the end of the repayment plan, the rest of the medical debts will be wiped out.
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