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.
