Life can be pretty unpredictable and medical problems can come out of the blue. Such health complications can lead you into a cycle of medical debts and bills which might prove overwhelming.
Today, most people have to live with debt and it gets worse if it is medical debt. Majority of people seeking bankruptcy relief do so out of medical debt. Luckily enough, there are stipulations in place to provide solutions in such situations.
According to research from the American Cancer Society published in the Journal of General Internal Medicine, more than 50 % of Americans are plagued by some sort of medical hardship.
A June 2019 poll done by the Kaiser Family Foundation states that 25% of Americans confirm that they or part of their family have had challenges paying medical bills.
In case you find yourself swamped with medical bills and debts, ignoring them is the worst idea and won’t make them go away. This will be a sure way to bring lawsuits against you.
Medical Hardship Help without Debt Relief
Is There a Chance For 401k hardship Withdrawals for Medical Debt?
When faced with massive medical debts, it is only too understandable that you might start thinking about the money in your 401k plan.
401k financial arrangements are intended to offer a source of income after you retire. This means that getting a hardship withdrawal before time can be pretty difficult to achieve.
However, as a last resort, you can turn to your 401k for help. Congress came up with provisions to allow people to get access to their 401k savings when they are faced by certain hardship situations.
It is important to note that the decision to make early withdrawals from your 401k plan might be accompanied by heavy financial penalties that include a 10% early withdrawal fine if you are younger than 59 years.
Fortunately, all is not lost as you might still qualify for a 401k hardship withdrawal in case you have medical debts that are more than 7.5% of your adjusted gross earnings.
What are Medical Hardship Template Letters?
Sadly, lots of people don’t realize that medical debt has a lot of similarities to credit card debt. They are both unsecured, meaning that you can negotiate if you are facing challenges in paying.
This is where medical hardship template letters come in to the rescue. In simple terms, these letters explain that you are not in a position to pay your medical debt.
The document is usually a request to be granted leniency and special consideration concerning your inability to pay.
Are there Free Medical Hardship Template Letters that actually Work?
While free medical hardship template letters have been used in getting medical hardship debt relief, the letter should be professionally done and highlight some important points. We like the free Medical Hardship letter from RequestLetters.com.
In addition to the letter being polite, ensure you explain why you are experiencing medical hardships and remember to attach a financial statement showing both income and expenses.
Most importantly, keep the medical hardship template letter short and precise, plus including a repayment plan that you can comfortably afford to pay.
While some people might find writing a strong medical hardship letter challenging, some sites can help you craft that letter.
Medical Hardship Help With Debt Relief
What Are Your Debt Relief Options?
Below we will go into details about your debt relief options. Just for context, there are pros and cons to each debt relief options, so these should be treaded lightly. Check out debt relief calculator below to understand the specific options including payment estimates and pros and cons. Read the information below the calculator for additional information.
First of all, before entering into a debt settlement agreement, make sure that you have a legitimate medical hardship. If you get into unnecessary debt (like getting state-of-the-art electronics or luxury cars) to get into a debt relief program, most debt relief companies will avoid you like the plague and it might be termed as a fraudulent action.
As a means of debt relief, debt settlement is highly beneficial for people who are struggling to meet their medical bill obligations. But there is a catch- you have to accept that the debt is valid. If you dispute the debt or think that the way the debt accumulated was unfair, then you don’t qualify for debt settlement.
People who have medical debts, no source of income, have lost their jobs, and have no financial support are suitable candidates for debt relief. You’ll want to compare debt settlement vs bankruptcy and debt management vs debt settlement to make sure you make the most informed decision when deciding on debt settlement. You will also want to lear about debt settlement tax implications, credit impact and lawsuits.
A debt management plan is a debt relief option that helps people reduce their unsecured debt; in this case, medical debt, and regain financial control.
After you enroll in a debt management arrangement, you have to make predetermined monthly contributions to a credit counseling company.
These monthly contributions are determined by what you can comfortably afford. In most cases, the monthly amount is reached by analyzing the expenses of a household versus the earnings (income).
Debt Management Agencies Checklist
Some of these companies provide free counseling services while others charge fees.
You must choose a credible and reputable credit counseling company with experience in debt management and consumer credit.
Make sure that the credit counseling company is licensed and there are no client complaints against them. Also, be on the lookout for any hidden fees.
Things to Know Before Enrolling In a Debt Management Program
While this is one of your reliable options to come out of medical debt, there are still some aspects that you need to consider.
Debt management programs can run for 3 to 5 years. This means that you should be prepared to go with them for the long haul. It is important to note that should you opt out of the program midway, all the concessions that were made on your behalf by the credit counseling company will be lost.
Some of the concessions include the reduction of interest rates and the removal of fees for late payment. This is why debt management plans call for absolute commitment and discipline.
As painful as it might be, when you are enrolling for a debt management arrangement, you might be asked to close all your credit card plans. In other cases, other debt management agencies might allow you to retain only one credit card for emergencies.
To be on the safe side, after you have agreed with the credit counseling agency as to how the medical debts will be handled, ensure that you call your creditors and confirm that the arrangement is in place and they have accepted it.
If due to some reasons the debt management plan payments are not paid in time, the progress that you had made on decreasing the debt might be deemed lost or inconsequential.
Another option for debt relief due to medical hardship is bankruptcy.
Does Bankruptcy Clear Medical Debt?
Before going any further, it is crucial to note that medical debt is not considered in a class of its own; rather, it is classed in the same category as personal loans, old utility payments and debts from credit card. In other words, a bankruptcy that is medical-specific doesn’t exist. The bankruptcy regulations handle them all in the same way.
While filing for bankruptcy for medical reasons, all of your medical debts and bills can go away because they are termed as unsecured debts, similar to credit cards.
Should I File a Bankruptcy for Medical Bankruptcy?
For many people overwhelmed by medical bills and debts, the most commonly asked question from them is whether they can file for medical bankruptcy without all the other debts coming up.
While you can easily file for bankruptcy due to medical debt, the chances of the other debts that you have incurred arising are pretty huge.
When you file for bankruptcy, remember that all unsecured debts that you have will be considered. In case you have other unsecured debts like personal loans, credit cards, back taxes, among others, they will have to be listed in the bankruptcy.
If you find that you cannot meet or you are not comfortable with all the aspects that entail filing for medical bankruptcy, this is not necessarily the only debt relief option at your disposal. You can still consider any of the above-mentioned debt relief choices.
Filing For a “Medical” Bankruptcy
If you want to use bankruptcy as a means of eradicating medical debt, there are two major ways of going about it: Chapter 7 or Chapter 13.
Types of Bankruptcy
Chapter 7 Bankruptcy
A chapter 7 bankruptcy is pretty straightforward. The whole exercise can last from 4 to 6 months and if it is successful, your medical debts are written off, in addition to all other debts that are unsecured.
Note that if you had paid for any medical services using your credit card, these bills will also be discharged in addition to all the credit card debts.
Remember that not all people qualify for a Chapter 7 bankruptcy. In 2005, Congress amended the bankruptcy laws and made it pretty challenging for people to file a Chapter 7 case.
For you to be eligible, a chapter 7 means test would have to be conducted on your family income and expenditures. We built a Chapter 7 calculator to determine eligibility.
In case your median income is more than your earnings less all necessary and reasonable expenditures, then you qualify for chapter 7 bankruptcy.
In chapter 7 bankruptcy, you are not limited on the amount of medical debt you are allowed to discharge. But as mentioned above, for you to pass a means test, your disposable earnings should be low enough.
It is important to note that during a bankruptcy case, not all debts are dischargeable. Examples include alimonies, past child support that is due and recent income tax. In rare cases, some debts such as student loans can be written off.
Property vis-à-vis a Chapter 7 Bankruptcy
Next, what does it mean for your property in a chapter 7 bankruptcy? If you claim an exemption on the property, you can keep it.
There are exemption lists that will tell you the maximum values for the kinds of properties listed.
Let’s say that you have secured debts such as mortgages and car loans. What will happen to your property when the bankruptcy process is over?
To have any chance at retaining your property after the bankruptcy is over; you have to continue submitting the payments.
In some chapter 7 bankruptcy cases, you might have to give up your property if you cannot exempt it. Here, you’ll turn over the property to a trustee, mandated by the court to administer the case.
All the property that is not exempt will be sold by the trustee and the proceeds channeled to your creditors.
Chapter 13 Bankruptcy
Also known as a wage earners program, a Chapter 13 bankruptcy can run from 36 months to 60 months. Here, all other unsecured debts are put together with your medical debts.
This plan is determined by your total debts and the disposable earnings, plus the assets that are non-exempt.
This means that it is possible for all the debt remaining at the end of the bankruptcy plan to be discharged even if you have paid way less money than you owe.
The downside of chapter 13 is that you have to live on a reduced budget every month because you will be giving away a huge chunk of your disposable income. For a Chapter 13 bankruptcy, you are set with a plan payment often between 36 months and 60 months. We built a Chapter 13 calculator to help estimate your plan payment in the case that you need to file a Chapter 13 bankruptcy.
Keep in mind that whether you go with a Chapter 7 or Chapter 13, you will be expected to seek credit counseling from an approved credit counseling agency. This will be to ascertain if you really need to file for bankruptcy.
Note that the counseling will be done before and after you file for bankruptcy.
Before you go ahead and find the most appropriate debt relief plan for medical hardships, it pays to take stock of every aspect of your situation to make a wise and helpful decision.
While it is true that debt relief plans can help you get back on your feet after a medical hardship, when done unwisely or for unsuitable reasons, they can backfire on you.
Finally, it is worthwhile to remember that on its own, medical bankruptcy doesn’t exist. Even though you are filing for bankruptcy due to massive medical debt, it will be impossible to limit the bankruptcy to only pending medical bills.