According to an NIH study, 66.5% of those filing for bankruptcy reported that medical debt played a key factor in their decision to file. This has given rise to the term “medical bankruptcy.” While technically, there is no such thing as a medical bankruptcy, the term is useful for describing the reasons why so many Americans file under Chapter 7 every year. Medical debt remains a serious problem for Americans who cannot foot the bill for medical expenses when an unanticipated need arises. 

According to another study conducted by Affordable Health Insurance, 56% of American adults owe some form of medical debt. Nearly a quarter of the population, 23%, owe more than $10,000. 

Medical debt is particularly pernicious because many Americans lose their jobs while they are incurring medical expenses. If they recently got into a car accident, they may not be able to work while they are recovering. Insurance may have significant deductibles, and more Americans are living check-to-check. It is a situation that appears to be getting worse before it gets better. 

Understanding medical debt

When you think of medical debt, you are probably thinking of hospital bills. But that is not the only way that medical debt presents itself. People often use credit cards to pay for medical bills they cannot afford to pay out of their bank accounts. In some cases, homeowners may take out a second mortgage on their home to pay for a needed procedure. 

Millions of Americans have limited or no health insurance coverage at all. In some cases, they have to pay considerable deductibles for their procedures. In other cases, they have to pay for the whole thing out of pocket. According to the U.S. Census, 27.2 million Americans are currently uninsured. 

Filing for bankruptcy on medical debt

Medical debt is considered unsecured debt. Unsecured debt is debt that is not backed by collateral. This includes most types of credit card debt and personal loans. Secured debt is backed by collateral. Mortgages and car payments are considered a form of secured debt.

For unsecured debt, most Americans will file under Chapter 7. However, in order to qualify for Chapter 7, you must be able to pass the means test. This generally means making less than the median state income for a family of your size. If you make more than the median state income, you must convince the court that your expenses don’t leave you with enough disposable income to survive. Chapter 7 also requires you to liquidate certain assets to repay creditors.

An alternative to Chapter 7 is Chapter 13. Under Chapter 13, you submit a repayment plan to the court. While Chapter 7 has income limits, Chapter 13 has debt limits. In other words, you can only owe so much money to file a Chapter 13 bankruptcy.

Both forms of bankruptcy will impact your credit score and your ability to secure credit in the future. So, it can be a difficult decision to make whether to file for bankruptcy or not.

Talk to a Danville, IN, Bankruptcy Attorney Today

Chris Arrington represents the interests of Indiana residents who can no longer afford to make payments to creditors. If you are facing wage garnishments, creditor harassment, or lawsuits, call our office today to schedule an appointment and learn more about how we can help.