Some debt, like a home mortgage, is a long-term expense many people expect to assume, and thus, a manageable payment plan is usually created to avoid financial stress and the need to consider bankruptcy. Other expenses, however, especially those that are sudden, large, and unavoidable, are less easily absorbed and can lead to overwhelming debt. Medical treatment is notoriously expensive, even with healthcare insurance, and many Americans find themselves owing thousands of dollars in medical bills following a serious illness or accident.
Seniors are particularly vulnerable to accumulating medical bills, as the effects of aging on the body typically require more frequent and intensive medical attention. Seniors appear to be a growing segment of the population seeking bankruptcy relief, and while there are a variety of factors that lead a person to seek this help, older Americans are experiencing larger debt loads from medical bills and unethical tactics by debt collectors seeking to intimidate them. Getting rid of overwhelming debt through Chapter 7 bankruptcy can be life changing for anyone, and medical bills represent a financial obligation bankruptcy can eliminate, but understanding where medical debt fits within bankruptcy process and whether Chapter 7 is an option one can pursue is important information to know at the beginnings of a bankruptcy discussion.
How is Medical Debt Treated in Bankruptcy?
Bankruptcy generally divides debt into two categories – secured and unsecured. Secured debt has a lien against the property from the lender that allows the lender to repossess or foreclose on the property if payments are not made. The most common examples of secured debt are home mortgages and financed automobiles. Chapter 7 bankruptcy filers usually do not have many secured debts, and medical bills do not fall into this group. Unsecured debt, which comprises the majority of consumer debt, covers everything not secured by property, including medical bills, credit cards, and personal loans. Unsecured debt is further divided into priority and non-priority. Priority unsecured debt is often non-dischargeable, i.e., cannot be eliminated through bankruptcy, and relates to debts from taxes, child support, and alimony obligations. Non-priority debt is not given any special consideration in bankruptcy, and are the last to be paid and typically fully dischargeable. Medical debt is considered non-priority unsecured debt, and will only be paid if non-exempt property is available to pay creditors. There is no limit on the amount of medical bills a bankruptcy can discharge, so this obligation can be entirely wiped out if a debtor qualifies for the Chapter 7 process.
Qualifying for Chapter 7 Relief
Chapter 7 was designed to provide debt relief to Americans financially unable to pay their debts. To ensure that high-wage earners do not use Chapter 7 bankruptcy to avoid paying debts they could otherwise afford, all Chapter 7 filers must pass a means test. Placing income-to-debt limits on Chapter 7 cases does not mean a debtor must be destitute to use this process, but he/she does need to show the existence of expenses that come close to meeting or exceeding monthly income. Further, only those holding primarily consumer debt may apply this test.
The big question the means test tries to answer is if a debtor has enough disposable income to cover at least some outstanding obligations. The first part of this analysis requires determining if the debtor’s annual income exceeds the State median income: In Indiana it is $71,113 for a family of four. If a family’s annual income exceeds the state’s median, then an analysis of the family’s expenses and income must be calculated to determine if any is available for debt repayment (disposable income). If a person’s disposable income is above the allowed amount, which varies by region, Chapter 7 is not available, though other types of bankruptcy relief may be.
Get Help
Overwhelming debt can have a devastating effect on a person’s life, and climbing out of it without help may not be feasible. Bankruptcy could be the help you need to get your life back on track, and end harassment from creditors and collection agencies. Christopher L. Arrington, P.C. understands the stress of your situation, and has years of experience helping people like you make a fresh financial start. Contact the Danville law firm to schedule an appointment and learn more.