- November 3, 2024
- Kelvin Birk
- Bankruptcy
Medical debt can hit you at a time when you are particularly vulnerable – sick and unable to work. When you are in a serious medical crisis, it’s more important to get well than to worry about how you are going to pay your bills; but when doctors and hospitals go after you for payments that you can’t afford to make, you are left in a terrible situation.
There is a way out. While no one wants to have to declare bankruptcy, Chapter 7 bankruptcy can be an effective way to eliminate medical debt and allow you to get back on your feet again with a fresh financial start. An experienced Missouri bankruptcy lawyer can help evaluate your situation and determine if bankruptcy is your best option for getting out of medical debt.
Understanding Medical Debt and Chapter 7 Bankruptcy
The United States Bankruptcy Code provides five types of bankruptcy, and the most common is Chapter 7. Chapter 7 allows you to discharge debts that are unsecured, meaning they are not backed up by collateral promised to the creditor, such as mortgages and car loans. Since medical debt is considered unsecured debt in bankruptcy, it can be fully discharged (eliminated) in Chapter 7, along with other unsecured debt such as credit card debt.
Benefits of Chapter 7 Bankruptcy for Medical Debt
Chapter 7 is a liquidation bankruptcy. After you file, a trustee is set up to collect assets that are not exempt, sell them, and distribute proceeds to creditors to satisfy your debts. However, that doesn’t mean you will lose everything. Often you will be left with most of your property because there are Missouri bankruptcy exemptions that list types of property that cannot be sold, including clothing, cars, tools and equipment used for work and household furnishings.
Benefits of Chapter 7 bankruptcy for medical debt include:
- There is no limit on the amount of medical debt that can be eliminated in Chapter 7. Medical costs can add up quickly after hospital stays and surgeries, and even if you owe hospitals and doctors hundreds of thousands of dollars, all these debts can be discharged.
- All types of medical bills can be included, even those charged to credit cards, as credit card debt is also unsecured.
- Chapter 7 bankruptcy is over quickly, and the discharge of your debts typically occurs within 4-6 months of filing
- Once you file Chapter 7, an automatic stay goes into effect that stops lawsuits, wage garnishment, foreclosure actions, and debt collection harassment from creditors, who may even have to return your repossessed car or other property.
- Having medical and other unsecured debts discharged can put you in a financial position where you can handle other debts, such as missed mortgage payments, and avoid losing important assets such as your home or vehicle.
- While Chapter 7 remains on your credit report for 10 years, making it harder to obtain credit, you can start rebuilding your credit quickly, as lenders will see you as a better risk once most debts are eliminated.
Considerations Before Filing Chapter 7 for Medical Debt
Before filing for Chapter 7 bankruptcy protection, you should consider whether you are eligible. Your income and debt will be subjected to something called a “means test.” This looks at your income and expenses to determine if you qualify by calculating your current monthly income based on the past six calendar months. You are likely to qualify if:
- Your monthly income is below Missouri’s median income for your household size,
- You don’t have enough disposable income to repay debts after covering necessary living, or
- You are a disabled veteran whose debts were incurred primarily during active duty.
If your income is below the median, you automatically pass the means test and qualify for Chapter 7 bankruptcy. If your income is higher, you may still be able to qualify after completing the full means test calculation where you deduct allowed monthly expenses from your gross income. If you don’t qualify for Chapter 7, you may still be able to file for Chapter 13 bankruptcy which will help you get rid of medical debt through a three- to five-year payment plan.
Be aware that there are some downsides to filing Chapter 7. Iin addition to damage to your credit report, if you have a great deal of non-exempt assets, some may have to be liquidated to pay off your creditors. In addition, while you may still receive emergency care, some healthcare providers may be hesitant to provide non-emergency care due to past unpaid bills.
The Chapter 7 Bankruptcy Process for Medical Debt
The Chapter 7 process for medical debt generally involves the following steps:
- Consult with a bankruptcy attorney to evaluate your situation. While it is possible to file bankruptcy without an attorney, it is advisable to have one to prevent making costly mistakes or having your bankruptcy dismissed without eliminating debts.
- Pay necessary fees including attorney and required court filing fees.
- Get mandatory credit counseling.
- File your petition and other forms with the court, including the bankruptcy petition, a number of schedules listing your assets and liabilities, your income and expenses, any contracts you have, a form to show that your income is low enough to qualify for Chapter 7, and claimed exemptions.
- The court appoints a trustee to analyze your paperwork and distribute any nonexempt property to your creditors. If you have enough exemptions, for a “no-asset” case, you will be able to keep your property.
- Creditor meeting. There will be a meeting of creditors (also called a “341 meeting”) where you answer, under oath, questions about your finances and bankruptcy forms from the trustee and any creditors.
- Your eligibility to file for Chapter 7 is confirmed by the court.
- You complete a required financial management course.
- You receive your discharge of debts three to six months after you file, and the automatic stay is lifted. After this, your case is officially closed, and you will no longer owe most or all of your creditors, including for your medical debt.
Alternatives to Chapter 7 Bankruptcy for Medical Debt
There are some alternatives to Chapter 7 you should explore before deciding to file. These include:
- Negotiating with medical providers to pay a lower amount
- Debt consolidation that combines multiple debts into one monthly payment plan that you can afford
- Seeking financial assistance programs
- Considering Chapter 13 bankruptcy for more gradual debt repayment.
Be aware that Chapter 7 may not discharge all your debts. In addition to debts secured by property, priority debts that cannot be discharged include:
- Taxes
- Student loans
- Court-ordered fines
- Child and spousal support.
Get Help from Our Bankruptcy Lawyer in Missouri
Bankruptcy is not something to be entered into lightly, but doing so can relieve stress and allow you to move on with your life. If you find yourself overwhelmed with medical or other debts, Attorney Kelvin Birk of the Birk Law Firm can help. Kelvin is a Certified Public Accountant as well as a lawyer, and knows how to thoroughly examine your financial situation to determine if Chapter 7 or some other debt-relief solution is right for you.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
