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Can I include my Medical Bills & Health Care Debt?

Posted on 05 Jun 2011 by admin | Filled under: bankruptcy

Mounting health care expenses can force any individual into a serious financial crisis. What options do you have? While there are several alternatives in dealing with your overall financial predicament, in bankruptcy, there are a couple different directions you can go.

Traditionally, bankruptcy is the solution of last resort for any individual who is in serious debt. Yet, when considering what to do about overwhelming medical debt, bankruptcy is an option worth considering. The courts deal with your debts differently. For example, a home mortgage loan is a secured debt and is handled very differently than medical debt, which is an unsecured debt. Of course when filing a bankruptcy, all debt, secured and unsecured, must be recorded. Unless you understand how the courts will handle health care debt, you run the risk of making a decision that will adversely affect your chance of benefiting from a bankruptcy.
One way individuals attempt to resolve their health care debt is to take a second mortgage on their home. While this solution can effectively consolidate medical bills for the moment, this plan is limited, and may not be the final answer to the problem. In addition, what was once a medical debt has now become part of a home mortgage loan.

Medical Debt and Chapter 7
Medical debt can be totally erased in Chapter 7 bankruptcies. In general, chapter 7 bankruptcy ultimately wipes out most, if not all, of outstanding unsecured debt. However, the major consideration in this type of bankruptcy is an individual's assets. A significant amount of individual assets are protected under a chapter 7. Some debt listed in a bankruptcy is tied to assets such as home mortgages and auto loans. These are called secured debts. Any assets tied to a secured debt can be repossessed or foreclosed. On the other hand, medical debt is classified as unsecured debt. In some cases, the majority of unsecured debts will be completely written off in a chapter 7. An individual who initially takes a second mortgage out on their home to pay off medical bills, then ends up filing for bankruptcy, will be marginalizing the benefits of the bankruptcy later on.

Medical Debt and Chapter 13
While medical debt will not be erased in Chapter 13, it can be reduced to pennies on the dollar. A chapter 13 bankruptcy is considered a reorganization of debt. An individual's debt is organized into a manageable payment plan over 3-5 years. In the process of reorganizing an individual's debt, the court will reduce the unsecured debt such as health care expense before reducing secured debt tied to assets. Most individuals who do not qualify for chapter 7 bankruptcies will file a chapter 13 instead. Assets can be better protected in a chapter 13.

As medical debt grows, you may find that a bankruptcy is inevitable. You should not wait until you are ready to file to become familiar with the advantages of bankruptcy. If you understand how bankruptcies work early on, you will likely make decisions that will not undermine the benefits of filing for bankruptcy later on.