What is medical bankruptcy?
Unfortunately, with the skyrocketing costs of medical care and lack of adequate medical coverage, there are thousands of Americans who accumulate medical debts they simply cannot pay. A medical bankruptcy refers to a bankruptcy which is filed primarily to discharge medical debts.
What if you have medical debts you cannot repay? Filing Chapter 7 bankruptcy may allow you to discharge certain types of medical debts immediately. Filing Chapter 13 bankruptcy may allow you to restructure your medical debts to repay them over a 3 or 5 year repayment period.
Types of debts discharged in bankruptcy
Whether or not your debts will be discharged will depend on the debts. For instance, secured debts are not discharged in bankruptcy. If you have secured debts the asset or collateral is repossessed if you fail to make payments. For instance, if you own a home or car filing bankruptcy will not discharge the mortgage or car payment, although in some cases you could discharge other unsecured debts which could free income to make payments for your secured debts.
Medical debts, however, are not secured debts. They are unsecured debts. Unsecured debts are further divided into priority and nonpriority unsecured debt. Medical debts are considered nonpriority unsecured debts and can be discharged or restructured through bankruptcy. Other nonpriority general unsecured debts include credit card debts and unsecured personal loans. Unsecured debts, which cannot be discharged, include priority debts such as taxes and domestic support obligations such as alimony or child support.
Can I file Chapter 7 or Chapter 13 bankruptcy if I have medical debts?
Whether you can file Chapter 7 or Chapter 13 bankruptcy in a medical bankruptcy will depend on your income level and whether you have sufficient disposable income to make debt payments. If your median income is too high or you have sufficient disposable income you will be barred from filing Chapter 7 and will instead be allowed to file Chapter 13 bankruptcy.
If you are allowed to file Chapter 7 bankruptcy the trustee will liquidate all of your non-exempt assets and use the proceeds from the sale to repay your creditors. The remainder of the qualifying debts, which are part of the bankruptcy, will be wiped out when you receive your bankruptcy discharge.
If you are required to file Chapter 13 bankruptcy, however, most or all of your assets will be protected but you will have to construct a bankruptcy repayment plan and repay some or all of your debts over a 3 or 5 year repayment period.
Is there a cap on the amount of medical debt I can discharge in bankruptcy?
Current bankruptcy laws do not limit the amount of medical debt which can be discharged through Chapter 7 bankruptcy. Consider, however, you must meet the income limitations to qualify for Chapter 7 bankruptcy. Some debtors, who have assets they wish to protect, however, will need to file Chapter 13 bankruptcy.
Talk to a bankruptcy lawyer to determine whether bankruptcy is right for you. Bankruptcy is a serious financial decision and should not be done without considering all of your financial options.
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