For a video of this topic, go to Discharge Medical Bills in Bankruptcy
Often, medical bills are the main reason for filing Chapter 13 bankruptcy.
The good news is that Chapter 13 bankruptcy does not disqualify you from ever going to hospital emergency rooms for necessary treatment and continuing to see your doctor.
Hospitals and laboratory bills are regularly discharged in Chapter 13 bankruptcy and I’ve never known anyone to have difficulty getting necessary lab work done even if they have filed bankruptcy on the very same hospital or laboratory that they now seek to use.
Emergency rooms will not refuse to treat you simply because you have discharged a debt to the emergency room in a Chapter 13 bankruptcy.
In fact, the emergency room generally doesn’t even know if you’ve filed bankruptcy or not.
Private Doctors are another story.
If you’ve been treating with a particular doctor and owe the doctor money when you file Chapter 13 bankruptcy, I generally suggest that you contact the doctor’s office, and talk to the doctor himself or herself.
My experience is that if you contact your doctor prior to filing bankruptcy and try to make arrangements to make payments on these debts then you will continue to be able to see that doctor.
You should know, however that the doctor is not required to continue to see you – but often they will.
If you owe a debt to a doctor, this debt must be listed in your Chapter 13 bankruptcy. You are not permitted to exclude any debts, including your doctor.
The doctor is not permitted to try to collect the debt you discharge in bankruptcy but you are permitted to voluntarily pay it. And this is what most of my clients do.
Credit Cards and Personal Loans
The most common kind of debt discharged in a Chapter 13 bankruptcy is credit card debt.
This accounts for more Chapter 13 bankruptcy cases than any other single kind of debt. Personal loans, signature loans, loans not secured by any personal property, are all discharged in a Chapter 7 bankruptcy without any payment whatsoever.
Of course, the credit cards and open loan accounts will be closed when you file, but credit cards are so easy to get that this should not be of concern to you.
These are the kinds of loans that you get from places like Eagle Loan, One Main Financial and Springleaf, formerly Beneficial, Household Finance, and American General.
These are high interest loans and generally these finance companies require you to fill out a form that lists personal property that is used as security for the loan.
I’ve actually had my clients tell me that when applying for these loans that the people working at the finance company put down property that they did not even own.
Theoretically, if you don’t pay these loans, the finance company can repossess these items.
This is a seldom done, as a practical matter. In fact, I’ve had clients try to surrender the property because they wanted to discharge the debt and feel that they treated the creditor fairly, since they did pledge the property as collateral, only to have the creditor refuse to take the property back.
Unlike Chapter 7, where you have limited options for these kinds of collateral loans, in chapter 13 you are able to keep the property, and you only have to pay the value of the property, in most cases, which is often much less than what you owe.
This is called a “Cram Down.”
For example, if you borrow $10,000 from Springleaf and you used your car for collateral, you must pay something to Springleaf in order to keep the car in a Chapter 13.
However, in chapter 13 you are able to cram down what you owe, in other words, you only have to pay to Springleaf to the value of the car. This means that you can pay spring leaf $4000, and keep the car.
The remaining $6000 that you owe Springleaf over and above the value of the car is treated like a credit card or medical bill in chapter 13, an unsecured debt.
In most cases, the Chapter 13 cases I file pay very little, often one cent on the dollar, so basically you would pay $60 to Springleaf to discharge the $6000 unsecured portion of the one.
And the interest rate will be lowered to 6.5 to 7% (as of January, 2019) as well, saving you even more money.
It is a shame to see people who can least afford the very high interest rates charged by these lenders suffering and paying out money they really need for living expenses because they are afraid their car will be repossessed.
And, in fact, the title loan companies do repossess cars. These are probably some of the most dangerous and frustrating loans that I see.
Because everyone needs their car for just about everything they do in daily life, the threat of not having the automobile is huge.
Although the debt owed to a title loan company is dischargeable, because they have a security interest in your car, they can actually take your car if you don’t pay the loan.
In chapter 7 cases, we often try to pay these loans off before filing our bankruptcy. But this is often difficult and sometimes impossible.
You don’t need to do this in a Chapter 13.
In a Chapter 13 you can pay back the title loan over a period of 36 to 60 months.
And, the interest rate will be changed to about 7%. !!
In most of the cases that I see, the title loan people are pretty smart.
They generally won’t loan anyone much more than the value of the car. If you have borrowed an amount that exceeds the value of your car then you can cram down the loan just like you can with the collateral loan.
Either way, Chapter 13 is a very effective tool to use against title loans
Payday loans are dischargeable in Chapter 13 bankruptcy.
Even though these lenders have you sign documents that seem to indicate that these loans would not be dischargeable in bankruptcy, they are, in fact, dischargeable in a Chapter 13 bankruptcy.
Although there is a provision in the bankruptcy law that says that cash advances adding up to more than $825 made within 70 days prior to filing are presumed to be non-dischargeable in chapter 13 bankruptcy, in practice I have yet to see a payday loan creditor file anything in any of my cases requesting that their debt be paid.
Typically, these payday loan creditors will require payment by automatically deducting the money from your bank account where your paycheck is deposited.
They like to time the payments so that the loan payment comes out very same day your paycheck is deposited.
This makes it virtually impossible for you to take the money out of your bank account prior to the automatic payment on the payday loan being made.
Occasionally payday loans are paid by check, typically a post-dated check that the payday loan creditor is supposed to hold and deposit on a certain date.
If you try to put a stop payment on these payday loans they are generally successful in avoiding the stop payment and end up getting the money anyway.
As you might expect, they’re very experienced at this. There is a particular way that I generally advise my clients to avoid payment on the payday loans that has worked very well.
Of course, once you file a bankruptcy case, you stop making payments on these loans too.
In chapter 13, payday loans are treated just like any other unsecured loan, like a credit card, or medical bill.
Once you file your Chapter 13 bankruptcy, the payday loan lender is not permitted to further access your bank account.