People may accrue substantial medical debt because they don’t have health insurance. Even those with insurance are theoretically at risk of massive medical debts.
Needing care from an out-of-network provider could result in tens of thousands of dollars in medical debt. High deductibles and large coinsurance obligations can also saddle people with insurmountable levels of medical debt.
Medical debt has become one of the leading causes of personal bankruptcy in the United States. Every year, approximately 530,000 people file for bankruptcy because of their medical debts. What type of consumer bankruptcy is appropriate for those with medical debt?
Any chapter of bankruptcy can help
There are rules and restrictions that apply to each of the most common types of bankruptcy. However, all of them can lead to a discharge of eligible unsecured debts, including medical debts.
Chapter 7 bankruptcy is a straightforward solution for those with below-average income and minimal property at risk of liquidation during the bankruptcy process. Chapter 13 bankruptcy may be the better option for those with higher income levels or assets that they cannot protect from liquidation in a Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy, the filer can discharge their medical debts in a matter of months if the filing is successful. The Chapter 13 process requires several years of structured payments before the discharge occurs.
Reviewing one’s financial circumstances with a bankruptcy attorney can help people choose the right type of bankruptcy given their current income, the debts they owe and the assets they own. Both Chapter 7 and Chapter 13 bankruptcy can potentially be useful for those with high levels of medical debt.