What Is Medical Bankruptcy?
When people talk about consumer debt, it is easy to conclude that shopping sprees cause it. Or maybe living beyond your means and bad financial habits. But do you know that medical debt is one of the leading causes of financial ruin today? According to the Kaiser Family Foundation (KFF), more than 25% of people in America find paying their medical bills a considerable challenge. From a study from the same organization, 9% of people in America had declared bankruptcy because of medical bills.
Medical bankruptcies is not an actual term, but are often the cause of a medical hardship. In general terms, there is no such thing as a medical bankruptcy, per Se. When you ask most people, they don’t know that when you file for medical bankruptcy to do away with overwhelming medical debt, you will not be able to limit the bankruptcy to pending medical bills only.
Medical debts are placed in the same category as other debts such as credit card debt, past utility bills, and personal loans. This means that the moment you file for medical debt relief, you will also deal with all the other unsecured debts as well. Concerning the scope of medical bankruptcy, when you lose income after taking time off from work due to an illness, you are still within the bracket. It does not only encompass doctor’s bills.
Reasons to Consider Medical Bankruptcy:
Sorry to burst your bubble, but the fact that one has insurance cover is not a guarantee against bankruptcy. Most people facing bankruptcy due to medical reasons found out too late that, in some cases, health insurance is just partial protection. Today, medical insurance premiums are frighteningly high.
In most scenarios, people have no choice but to declare medical bankruptcy in medical emergencies where the deductibles do not cater for the whole amount. This leaves the person with a huge bill that cannot be covered by the person’s income. The constant expenses do not make the situation any better either.
1. How do Hospitals Pursue Unpaid Debt Differently than Credit Card Providers?
When you have unpaid medical debts, hospitals will try a variety of ways to make you pay. The first and most likely method is using the hospital’s internal collection section. When this doesn’t work, they can use either of the methods outlined below.
While hospitals and other medical services providers are not likely to sue for medical debts that are unpaid, today, it has become a reality. More hospitals and doctors are turning to the courts as the patient’s debts soar and deductibles rise. They see this as the only option to recoup their money and keep the health system afloat while arguing that they are only going after patients who won’t pay but have the means.
Another option that hospitals and medical practices are using more and more frequently is using debt buyers to buy the debts. These collection agencies usually pay pennies for every dollar and then strive to collect a higher amount than they paid to the hospital. Most people think that the reason hospitals sell their debts is to distance themselves from debt collectors whose aggressiveness is legendary.
2. Will my Doctor Stop Treating Me if I File a Medical Bankruptcy?
After filing for medical bankruptcy, many debtors wonder if they will still be able to access medical services. The moment the ‘discharge order’ for medical bankruptcy is accepted, the patient’s liability for the medical debt ceases. This means that the hospital/doctor forever forfeits any right to request payment for the medical debt.
Generally, the hospital can terminate the relationship with the patient and deny him future services due to the non-payment of medical debt. However, there is a catch. This is only possible if the termination of the doctor/patient relationship was done correctly. There has to be a strategy of future care set in place. Without this plan, there might be both ethical and legal repercussions, which might include abandonment charges.
A doctor can terminate the relationship, but only if he has provided prior notice to the patient about the termination of the relationship, especially when the patient is receiving ongoing medical care. The exception, in this case, is that the doctor cannot refuse to attend to the debtor in a real medical emergency. For instance, if you are in a car or fire accident and you are rushed to the emergency room, they have to attend to you. Note that if a debtor prefers to continue seeing the same doctor, they can set up a plan to pay the debt even after the bankruptcy discharge.
3. Will all My Medical Debt be Eliminated in a Medical Bankruptcy?
After filing for medical bankruptcy, your debts are separated into various categories, namely non-priority and priority debt. Bankruptcy won’t eliminate debts like a recent overdue tax. Luckily, medical debts fall under the general unsecured category, similar to your credit cards; they don’t get priority treatment, and wiping them off through bankruptcy is easy.
How to Eliminate Medical Bills through Bankruptcy
In both Chapter 7 and Chapter 13 bankruptcy, it is possible to eliminate medical debt. Your choice between the two will depend on your eligibility and what is more sensible in your case.
Chapter 7 Bankruptcy
If you are eligible for Chapter 7, the bankruptcy discharge will do away with your medical bills, plus some other unsecured debts. With Chapter 7 bankruptcy, the amount of medical debt you can discharge is limitless. All medical bills you paid via your credit card will be eliminated along with the credit card debt. But to be eligible for a Chapter 7, your disposable earnings should be low enough to pass the Chapter 7 Means test.
Chapter 13 Bankruptcy
In Chapter 13, your medical bills are grouped with all other general unsecured debts that you have. What you will have to pay will be determined by your expenses, income, plus nonexempt assets. Every creditor will receive a portion of the total figure going towards payment of the debts. Remember, if you don’t earn enough to pay the debts in full, you may not be eligible for Chapter 13. Additionally, all your debts and medical bills cannot surpass the allowed Chapter 13 debt limit. We developed a free Chapter 13 calculator to help estimate what your monthly payment would be and the term of a Chapter 13 bankruptcy,
4. Alternative Options to a Medical Bankruptcy
There are numerous alternatives to bankruptcy. Each has its own set of pros and cons, so we want to provide as much information as possible to help you be informed.
Debt Payoff Planning
The debt payoff planning method is for those who could avoid bankruptcy by either increasing income or reducing expenses to manage the debt. There is the snowball and avalanche debt payoff method. We developed a new method called the Savvy Method that is a more customized and data driven approach to debt payoff.
For debtors who cannot afford to pay off their medical bills, debt settlement is an option that can be pursued. This gives you the option of paying less than you are owed. By using a professional debt settling agency, the hospital, doctor, or collection agency will be contacted for negotiations.
In most cases, the creditor will agree to a figure that is less than your debt. According to the experts, it is in your best interest to begin the debt settlement process early before the debt is turned over to the collection agency by your doctor. A seasoned debt specialist can negotiate a favorable deal for you.
A debt management alternative is a strategic approach to eliminate unsecured debts such as medical bills. People with medical debts retain debt management agencies to work alongside creditors to reduce interest rates and monthly payments on your debts.
They also advocate for waivers or reduction of penalties. In this scenario, the parties involved can agree on an affordable payment plan that can run for 3 to 5 years. Before embracing a debt management plan to deal with medical debt, it is recommended that you select a credit counselor to assist you. Most of these counselors offer free services, but others might charge some fees.
Medical Bankruptcy Final Thoughts
With this information at your fingertips, you will be better informed at the options facing you should you decide to proceed with medical bankruptcy. You can start the journey to being debt-free today!