Bankruptcy Filing: A Solution for Your Medical Debts?

An unexpected or serious illness can lead to high medical bills, and health insurance may not cover all of these costs. A study published in the American Journal of Public Health found that medical issues contributed to 66.5% of all bankruptcies in the U.S. (This was a 2019 study, and the situation may have changed somewhat since then). As healthcare costs continue to soar, a growing number of individuals are exploring the option of bankruptcy to manage or even eliminate their medical debt. The two main avenues for this are Chapter 7 and Chapter 13 bankruptcy. Here's how they can assist:

Medical Debt and Chapter 7 Bankruptcy: Filing a Chapter 7 bankruptcy will effectively eliminate all your medical debt. There is no ceiling or floor on the amount, and this is a debt you won't need to repay. To be eligible for Chapter 7, you must pass a means test, which examines your income and expenditures. It's important to remember that you must continue to cover your health insurance costs throughout and following a Chapter 7 bankruptcy. However, your medical debt could be entirely discharged post-bankruptcy. If you're struggling to pay your medical debt, or if you’re being harassed by medical debt collectors, then Chapter 7 might be the right path for you.

Medical Debt and Chapter 13 Bankruptcy: By filing a Chapter 13, your debt and bills are consolidated and a portion of your medical bills (as little as 1%) will likely need to be paid; however, any unpaid medical debt (up to 99%) gets discharged at the completion of your Chapter 13 plan. As with Chapter 7, eligibility for Chapter 13 depends on several factors, including your income, debt, living expenses, equity, and assets. Unlike Chapter 7, your total medical debt when filing Chapter 13 must be less than $465,275. If your total medical debt falls below this threshold, you may be able to have the vast majority of your medical debt discharged while repaying only a small part of it.

If you're grappling with medical debt and considering bankruptcy but are unsure of which Chapter would work best, reach out to us at (866) 473-1996 for a free initial consultation.

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Michigan Statute of Limitations On Debt

In the state of Michigan, there is a statute of limitations on debt. But many debt collectors and creditors seem to forget about this or illegally pursue old debts knowingly.

Official Statute of Limitation on Debt in Michigan

The statute of limitations on debt in Michigan varies depending on the type of debt, however, the statute of limitations for customer debt in Michigan is six years. This is applicable to all four types of contracts including:

• Written contracts (signed documents)

• Oral contracts (verbal agreements)

• Open-ended accounts (credit cards)

• Promissory notes

Understanding the Statute of Limitations on Debt

There is a lot of confusion regarding the statute of limitations. It is important to understand that the statute doesn’t necessarily stop a person from trying to collect his or her debt from you. It just means they can’t pursue the existing debt through a court process.

After the statute of limitations has lapsed, creditors and debt collectors can still pursue the debt in the following ways:

• Send you a correspondence

• Contact you through a phone call

• Give your information to credit reporting agencies

In other words, they are legally barred from harassing you but they are still allowed to try and collect their debts.

The lifecycle of a debt

When you fail to pay a debt as agreed, the creditor or debt collector will attempt to sue you for the amount owed. They will start by contacting you and if you pay some amount, the terms are renewed.

But if you don’t make any payment, the lender or debt collector will try to seek a court judgment. This can result in garnished wages. In Michigan, the statute of limitations is six years, meaning, the creditor generally has up to six years to file the lawsuit and recover a debt.

Judgments on debt

If the debt collector manages to obtain a court judgment, then the statute of limitations resets. They will have up to 10 years to collect. This can be through wage garnishing or any other way. Within the 10-year duration, the lender can decide to renew the judgment and again increase the timeframe to collect the debt from you.

Time-barred debts

A time-barred debt is a debt that has exceeded the statute of limitations. This can be your legal standing in case a collector tries to sue you after the statute of limitation has passed.

What you can do

• Avoid debts whose contractual terms are unclear

• Don’t ignore letters from the court

• Avoid speaking to the debt collector without your attorney

Protect Yourself from Creditor Harassment

At Moran Law, we are experienced in protecting you against creditor harassment. Michigan state and federal laws can protect debt collection tactics. If you are being harassed with telephone calls or threatened with legal action, our Michigan bankruptcy attorneys can help. 

Life After Chapter 7 Bankruptcy: What You Should Know

Filing for a chapter 7 bankruptcy can give you a fresh start. However, many people find that life after chapter 7 bankruptcy isn’t what they thought it would be. After a chapter 7 discharge, many people may have issues trying to figure out how to manage their money or struggle to buy a house or a car. 

If you have found yourself in this situation, there’s a lot to know about recovering from chapter 7 bankruptcy. Here are 3 things to keep in mind for life after a chapter 7 discharge.

You Need To Create A Thorough Budget

Many people find that they have to file for bankruptcy because of their spending habits. Even if you had to file for bankruptcy due to things like medical debt, divorce, or unemployment, you can still benefit from creating a thorough budget after a Chapter 7 discharge. Don’t go on a spending spree just because many of your debts were wiped out. 

Take a thorough look at your bills and income so that you can figure out how much money you have leftover every single month. It’s also a good idea to put as much money as possible into a savings account. This will allow you to have the necessary funds needed when unexpected expenses occur.

Building Up Your Credit Score May Take Some Time

When it comes to adjusting to life after a chapter 7 bankruptcy, one thing to focus on is building your credit. A lot of people become very discouraged when they see that their credit scores tanked after filing for a chapter 7 bankruptcy. 

Fortunately, you can bring your scores up if you use credit responsibly. You may need to start by getting a secured credit card, only making a small purchase on it every single month, and paying it off by the due date. By having responsible spending and credit habits, you may wind up having a score that is a lot higher than it was before you filed for chapter 7 bankruptcy.

You Can Still Buy A Car Or A House With Some Patience

Now that you are trying to live your life after chapter 7 discharge, you may want to buy a new car or a house. Many people are actually able to finance these types of items within a couple of years of filing for bankruptcy. 

While your bankruptcy will stay on your credit for 10 years, it will have less of an impact over time. What this means is that you can greatly improve your chances of getting a good interest rate by waiting to make these types of purchases for as long as possible. Stay patient, and you can buy a car or home.

Make Sure to Talk to an Experienced Attorney

Navigating life after a bankruptcy may not be easy, but it is possible to recover. Our Michigan bankruptcy attorneys not only help you through the bankruptcy process, but we can also help prepare you for what life after a chapter 7 bankruptcy will look like.