It is no secret that bad health and bad debt often coincide. Unexpectedly large medical bills can impose a sizable burden on those who are already physically and economically fragile. In some cases, medical debt can contribute to a collapse of creditworthiness that forces some people to declare personal bankruptcy. The rising cost of health care and the growing number of Americans without adequate health insurance coverage has led many people to file Chapter 7 bankruptcy to eliminate their medical debts.
When you file for bankruptcy, your debts are separated into different categories. Certain debts receive special priority treatment and can’t be eliminated through bankruptcy. Fortunately, medical debt is not one of them.
In bankruptcy, medical bills are considered general unsecured debts just like your credit cards. This means that medical bills don’t receive priority treatment and can easily be wiped out by filing for bankruptcy.
Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the number 1 cause of such filings, and outpacing bankruptcies due to credit card bills or unpaid mortgages, according to new data. And even having health insurance doesn’t buffer consumers against financial hardship.
In a Chapter 13 bankruptcy, medical bills are lumped in with your other general unsecured debts in your repayment plan. The amount you must pay general unsecured creditors depends on your income, expenses, and non-exempt assets.
When it comes to medical bankruptcy, consumers need to look at it the same way they would for personal bankruptcy, which means their credit will take a hit for as long as 10 years depending on the type they file. Consumers can either file for Chapter 7, which is when assets go into liquidation and the debts are wiped out, or Chapter 13, which reorganizes the debt into a repayment plan.
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