Filing for Bankruptcy to Deal with Heavy Medical Debt
Medical debt is by far the leading cause of personal bankruptcy in the U.S. A 2019 study found that 66.5 percent of all bankruptcies were tied to health care costs. Subsequently, COVID-19 threw millions of people out of their jobs and saddled them with virus-related medical bills. With COVID-related medical debt totaling somewhere between $60 billion and $125 billion, an additional rise in personal bankruptcies is expected.
If you are struggling with debt due to high medical bills, you are not alone and you may be able to utilize the bankruptcy laws to get some much-needed financial relief.
Chapter 7 bankruptcy is one option. Sometimes called a “fresh start” bankruptcy, Chapter 7 eliminates unsecured debts, which include medical bills and credit cards. To file for Chapter 7, you will need to complete a means test, which is essentially a formula to determine whether you have disposable income sufficient to repay part of your debt. If your projected disposable income is above a certain amount, then you may be ineligible for Chapter 7 and may need to file for Chapter 13 instead.
Chapter 13 bankruptcy involves a debt reorganization and repayment plan. If the court approves your plan, your unsecured debts are consolidated into a single obligation and you make monthly payments for the next three to five years. At the end of the payment period, any remaining debt is discharged. The drawback of Chapter 13 is that for you to qualify, your unsecured debts — including medical bills — must be less than $419,275. People undergoing extensive procedures or long-term treatments often have bills far in excess of that limit.
An experienced California bankruptcy lawyer can help you decide between filing Chapter 7 or Chapter 13 to resolve your medical debt. A lawyer will be able to analyze your finances, including your medical bills, and decide whether other relief options are available, such as refinancing debt with the cooperation of the medical providers. An attorney will also be able to explain the practical differences between Chapter 7 and Chapter 13, such as the costs, the length of time each takes to complete and the effects on your credit rating.
The Law Offices of Michael Jay Berger in Beverly Hills helps people deal with medical debt and through bankruptcy and through debt settlement. You do not have to choose between paying medical bills and buying food or paying rent. Get a free initial consultation by calling 310-271-6223 or contact me online.