Bankruptcy is a legal process when a person or business cannot pay their debts. Bankruptcy can be fueled by many reasons, such as loss of income, overspending, foreclosure, etc. However, a rather unfortunate yet common reason for bankruptcy due to medical bills. Join us, as we explore the nitty-gritty of medical bankruptcy and understand if it is worth it.
How can medical debt burden your financial stability?
According to the latest surveys, 1 in 5 households in the United States are not able to pay for medical care when needed, and the total medical debt of the country stands at USD 220 billion. Such figures are jarring, to say the least, and reveal an even grimmer picture when digs a bit deeper.
Unlike other types of debts, medical debts are unplanned and two-thirds of medical debts are the outcome of one-time or short-term medical expenses arising from acute healthcare needs. The repercussions of such massive medical debt are many. Firstly, people are delaying required care in the fear of falling into a debt trap. Likewise, others are filing for bankruptcy and are forced to start their lives from scratch.
Things to consider before filing for bankruptcy
Although medical bankruptcy is not a legal term, it refers to the phenomenon of filing for bankruptcy due to medical bills and debt. Bankruptcy filings are segmented and legitimized according to the various chapters of the Bankruptcy Codes of the United States. Medical debt is a form of dischargeable debt according to Bankruptcy Codes. They classify medical debt as unsecured debt, implying that it is a type of debt not attached to any property or physical assets of the debtor.
You can file for medical bankruptcy through Chapter 7 or Chapter 23 of the Bankruptcy relief. However, you have to opt for a credit counseling class to decide whether you want to file for bankruptcy according to Chapter 7 or 13. When you file bankruptcy for medical bills, medical debt is discharged under Chapter 7 when the court liquidates non-exempt assets. On the other hand, with Chapter 13 of the bankruptcy code, you will have to make a repayment plan to pay off most of your debt over three to five years. After the repayment plan period ends, you are discharged from the remaining debt.
However, filing for medical bankruptcy has many repercussions, such as your credit score taking a massive plunge.
- What will the impact of bankruptcy be on your credit score?
Filing for medical bankruptcy can leave a far-reaching dent in your credit score, which can last for seven to ten years. Likewise, bankruptcy also increases your lending risks in the eyes of lenders, making it very difficult to get financing for big purchases, such as a house or car.
- Is it realistic to repay your medical debt?
Under typical circumstances, it is advisable to pay your medical debt and consider filing bankruptcy only when everything else fails.
What are some alternatives to bankruptcy?
There are certain alternatives to filing bankruptcy for medical bills, such as –
- Seek financial assistance grants
You can consider taking financial assistance grants, as they can alleviate your medical debts and the consequent monetary pressure.
- Consider debt consolidation
You can also consider debt consolidation, which involves taking out a loan to pay off many others.
- Set up a payment plan with your medical provider
Lastly, talk things through with your medical provider and set up a payment plan with them.
Who can help me with the decision?
If you are experiencing financial hardships, including the ones brought on by medical debt, it is best to consult a financial advisor.
