Medical debt is one of the main reasons people choose to file for bankruptcy. The idea is that the court will issue an order to discharge all debts and medical payments will be written off. When you file for bankruptcy, there are three ways in which you can go about it. There is a chapter 7, chapter 11, and chapter 13 bankruptcy options. In all of the cases, your debts are separated into categories and either paid off or discharged. The way in which it is done might be different, but the way debts are treated are similar. Let’s take a detailed look at medical debt in bankruptcy.
Medical debt in bankruptcy
Medical debts are considered to be unsecured, that is, medical debts are not backed by anything. There is no need to pledge assets or property to be eligible for medical care. The priority rankings for unsecured loans are really low, so the courts may decide that since you are declaring bankruptcy, then the medical bills are not a priority, just like credit card bills. They are both ‘general unsecured’ loans.
Chapter 7 bankruptcy normally allows you to wipe out all medical bills, regardless of high or low your dues are. The only thing you need to qualify for is having a future disposable income that is lower than a limit set by the law.
The chapter 13 provisions are a bit different. You need to prepare a reorganization plan that is approved by the court. In this plan, priority, as always goes to the more important debts that are secured. Second, comes the unsecured debts, like taxes and other mandatory payments. Once that is done, your general unsecured debts are brought up. Your creditors receive a pro rata portion of the money allocated to the general unsecured category. It is normally a small amount, pennies on the dollar at most. So your debts will be removed for the most part.
If you are struggling with medical debt, contact our experienced team of Dayton bankruptcy lawyers. We understand your stress and can help you get back on track.