Medical debt can quickly grow out of control, leaving you feeling stuck and unsure about your financial future. A practical way to deal with this problem is to file for bankruptcy and discharge your medical debt. Doing so will help you get on the road to recovery. Filing for bankruptcy can hurt less than not filing for bankruptcy, as unpaid medical bills might result in wage garnishments, excessive collection efforts, and a bad credit score. The longer you wait, the more complex these consequences can be resolved.

If you choose bankruptcy, you immediately get relief from collection actions and a path to handle or eliminate your debt. You can use Chapter 7 or Chapter 13, depending on your situation. With bankruptcy, you will be shielded from creditor harassment and have a chance to rebuild your financial stability. This allows you to take action now, move forward confidently, and get your finances back on track.

Managing Medical Expenses With Bankruptcy Proceedings

Even though it is often referred to as 'medical bankruptcy,' filing for bankruptcy addresses all types of debt, including medical expenses. Medical debt in California is considered unsecured debt, like credit cards and personal loans when filing for bankruptcy. Often, medical bills take up a significant portion of financial strain, particularly when you have no insurance. This is because these costs can escalate quickly.

Expenses arising from medical care which cause financial problems include:

  • Hospitalization.

  • Emergency room visits.

  • Surgical procedures.

  • Diagnostic tests.

  • Consultations with medical specialists.

  • Prescription medications.

  • Physical therapy.

  • Ambulance services.

  • Home care.

Without insurance, even a single unexpected medical problem or a chronic condition can quickly become insurmountable debt. It often piles up faster than you can manage.

In bankruptcy, you must list all your debts. This ensures that no creditor is paid off preferentially. All the other unsecured obligations must be included alongside medical expenses. This helps the courts evaluate your financial situation comprehensively. A fair resolution process is guaranteed because selective discharge is not allowed.

Before proceeding, you must disclose your full financial details, including income, assets, and expenses. Even if your spouse does not file jointly, their income will still be considered if it helps pay shared household costs. This transparency allows the court to determine your financial situation and what relief is appropriate accurately.

When you are buried under medical debt and other obligations, bankruptcy is a structured solution you should consider.

Secured and Unsecured Debts

If you take out a secured loan, you must put up an asset or collateral to ensure repayment. If you fail to repay, the lender can take the collateral to cover their losses. However, this lower risk for lenders often translates into lower interest rates and better terms for borrowers.

Mortgages, for example, are where your home is collateral for the loan, and auto loans are secured by the vehicle. Also included in this category are home equity loans, which use your property as collateral to secure you the funds. You can qualify for larger amounts and better repayment terms by putting up collateral.

However, unsecured loans do not need collateral. Your credit score, income, and financial history are all required to get approval. Since lenders or banks carry more risk, these loans require a higher interest rate and firmer terms.

How Chapter 7 Bankruptcy Discharges Medical Debt

If you are drowning in medical debt, among other unsecured debts, filing for Chapter 7 bankruptcy can provide some relief.

Chapter 7 allows you to discharge most unsecured debts, including medical bills, credit card debt, and personal loans. However, medical debt, in particular, can quickly become unmanageable, especially when you face an expensive health crisis or have no health insurance. When you file for Chapter 7, you do not have to pay medical expenses. This means you will have a fresh start.

Medical debts are unsecured, so creditors cannot seize your assets to collect on the debt. This is a critical advantage. It allows immediate relief from dealing with the nasty downside of aggressive debt collection efforts like rude phone calls, wage garnishments, or lawsuits.

A significant concern for people considering bankruptcy is losing their assets. However, California has bankruptcy exemptions that allow you to keep the necessary property. These exemptions protect your home, car, and personal belongings from liquidation.

The homestead exemption allows you to keep a portion of the equity in your home and save your home. In addition, personal property, including clothing, household goods, and even a vehicle (up to a particular value), is also protected. However, if your assets exceed these exemption limits, they may be liquidated. Nevertheless, most filers can protect their primary possessions because of the state’s favorable exemptions.

You must pass the means test to file bankruptcy under Chapter 7. Here, you automatically qualify for Chapter 7 bankruptcy if your household income is below the median income for a similar household in the state. On the other hand, if your income is higher than the median, the court will consider whether you can afford to pay some of your debts. This will make you ineligible for Chapter 7 bankruptcy, forcing you to file for Chapter 13 bankruptcy. The means test ensures that people with higher incomes do not abuse the bankruptcy system. It helps to determine whether you should file for Chapter 7 or if you can handle your debts through a different bankruptcy plan that involves repayment.

While Chapter 7 bankruptcy does offer relief from debts, it will negatively impact your credit score. Filing for bankruptcy will remain on your credit report for up to 10 years, making it harder to secure new credit or loans. You could also be charged higher interest rates when you qualify for credit.

That said, filing for bankruptcy can also mark the start of rebuilding your financial life. Once you have discharged your debts, like medical bills, you will regain control of your finances. Working on practicing responsible financial habits can slowly improve your credit score over time.

It is worth noting that not all debts are dischargeable in Chapter 7 bankruptcy. Medical bills, credit card debt, and personal loans can be paid off, but not student loans, child support, alimony, and some tax debts. If you owe these non-dischargeable debts, your bankruptcy filing will not wipe them out. Furthermore, if you have substantial income or own significant assets, the bankruptcy court could make you pay back some of your debt in a Chapter 7 bankruptcy proceeding. Chapter 7 is meant to discharge debts, but the court will also examine your finances to ensure you are not abusing the process.

How Chapter 13 Bankruptcy Can Discharge Medical Debt

If you need a repayment plan to reorganize your debts, including medical bills, you should file for Chapter 13 bankruptcy. In Chapter 13, you keep your assets and make structured payments over time.

In Chapter 13, you develop a repayment plan to pay your debts over three to five years. This plan combines your medical debts with other unsecured debts, and you can pay them off in a manageable way without losing your property. The repayment plan is designed to help you retain property ownership while repaying your debts over time. Chapter 13 is particularly attractive if you have significant assets that you want to keep.

You can include medical debts in your Chapter 13 repayment plan. Although you do not get discharged immediately like in Chapter 7, you can lump them with other unsecured debts and pay them over time. Any leftover unpaid medical debt is discharged once you pay off the debts per the repayment plan. This will relieve you from a substantial financial burden.

It is worth noting that filing for Chapter 13 bankruptcy will impact your credit score but less than Chapter 7. The repayment plan can help increase your credit if you make your payments on time under the plan. This can show that you can handle the debt and make payments.

You must have certain income and debt levels to qualify for Chapter 13. It must be regular and enough to pay for the repayment plan. Moreover, your eligibility for Chapter 13 is also limited by the amount of debt you can have. Also, the bankruptcy court has to approve your proposed repayment plan. Your living expenses and income will be considered for the court to review the plan to ensure it is fair and feasible. Once you are approved, you will follow the plan for a set period, and when you complete it, any remaining qualifying debts, including medical bills, are discharged.

Alternatives to Bankruptcy for Medical Debt

Bankruptcy is one of many options you have for managing medical debt. You can explore different options to regain financial stability without the long-term effects of filing for bankruptcy. With these options, you have flexibility, which often helps you solve your financial problems. Some of them include the following:

Let the Court Process Handle It and Do Nothing

If your assets and income are limited and legally protected, creditors could face significant challenges in collecting your debts. In this case, you are considered 'judgment proof' and protected from some collection tactics. However, being judgment-proof does not prevent creditors from pursuing collection efforts.

Creditors could seek court orders if they believe your earnings are worth garnishing. Should the courts grant their request, a portion of your pay from your paycheck is directed to the creditors. Although laws limit the amount garnished, this can still strain your finances. Likewise, creditors can target your bank accounts through levies. However, some income, including Social Security or disability payments, are usually exempt from seizure.

Liens also give creditors a legal claim against your property, like your home. The good news is that if the property is exempt, it will usually be protected against seizure, and you can even get it back if you are forced to sell or refinance with a lien on the property. These actions do not always lead to immediate loss of assets, but they can sometimes be difficult.

Some relief is provided by being judgment-proof, which limits creditors’ ability to recover debts effectively. However, this status may only provide temporary protection.

Ask About Financial Assistance for Medical Care

There are programs like the Hospital Care Assurance Program (HCAP) that help patients deal with overwhelming medical bills. You could qualify for these programs. However, taking action and applying for these programs can reduce or even eliminate your financial burden if your application is approved. Nonprofit hospitals, particularly those with federal tax-exempt status, often commit to serving their communities. They do so by offering affordable care to those who need it, regardless of whether or not they can afford it.

These hospitals usually offer several resources, including:

  • Financial assistance programs.

  • Charity care policies.

  • Sliding fee scales.

These options are created to reduce the burden of paying medical bills for patients who cannot afford to pay their medical bills. You should contact the hospital’s financial aid department, learn about your options, and apply for coverage that works for you.

To increase your odds of being approved, gather documents, including proof of income, insurance information, and information on financial hardship. Present this information to help you demonstrate your eligibility and willingness to resolve the debt.

Negotiate Directly With Medical Providers

Contacting your healthcare providers can help you manage your medical debt. Hospitals and clinics know many of their patients face financial issues, and they often help out patients through assistance programs or low-cost options. Negotiating a payment plan that works within your budget or reducing the total amount you owe can be done quickly if you act immediately.

Start by dealing with any payment problems related to insurance. Check your policy to see that all eligible claims have been processed appropriately. If the insurer has denied a claim, appeal that decision based on proper documentation so you can get all the benefits available. Resolving these issues will help you know what part of the bill remains your responsibility.

However, when it comes to uninsured medical expenses, healthcare providers often show flexibility in negotiating. They can waive some charges or offer significant discounts if you prove you have financial hardship. Transparency when you present your situation, plus your willingness to work to resolve the debt, will strengthen your position. Many providers appreciate proactive efforts and may be more inclined to offer favorable terms.

Work With a Credit Counselor

Using a nonprofit credit counseling agency is a smart way to address debt. These agencies negotiate down interest rates with creditors, consolidate debts into a single monthly payment, and fashion a plan that aligns with your financial needs.

Credit counselors help you analyze your financial situation and tailor a debt management plan to fit your budget. This approach lets you streamline your payments and makes it easier to manage what you owe. With a credit counselor, you can reduce the stress of dealing with creditors directly and follow a clear, structured repayment plan.

The agencies also offer financial education to help you make better decisions going forward, in addition to debt management.

Why You Should File Bankruptcy Before a Creditor Gets a Judgment

The judgment in a bankruptcy proceeding occurs when you fail to meet the obligations under the bankruptcy plan. This could happen in the Chapter 13 or the Chapter 7 bankruptcies.

Chapter 13 requires you to follow a court-approved repayment plan and pay a trustee regularly. If you fail to honor your payments or violate any terms, the court can render an adverse judgment. This allows creditors to take aggressive collection action against you. These actions could be wage garnishment, bank levies, or property liens and can result in more financial setbacks.

In Chapter 7, you must file promptly because if a creditor gets a judgment against you, they can place liens on your property or garnish your wages. However, these actions stop if you file before they get a judgment. The automatic stay stops these collection activities, which prevents liens from being placed on your property. This stay allows you time to protect your assets and avoid more legal problems.

Bankruptcy also provides relief from dischargeable debts like credit card bills and medical expenses. For instance, medical bills and credit cards are commonly dischargeable debt in bankruptcy. It complicates things to wait until after a judgment has been made. The creditor could have a valid lien, thus having the right to collect the debt in full. Filing early ensures these risks are avoided, giving you the full benefit of debt relief under Chapter 7.

Find a Bankruptcy Attorney Near Me

It is hard to deal with debt. It is even more challenging when you have to deal with other responsibilities like caring for a loved one who has incurred medical bills. The stress increases as creditors start collecting from you, adding more stress to your finances. These situations call for professional help.

A bankruptcy attorney can guide you if you are in this complex situation. They can explore alternatives to bankruptcy, negotiate with creditors, and help you find the best way to handle your financial problems. Using debt settlement, reorganization, or other methods, an attorney ensures you know your options.

Do not face this burden alone. If you would like to talk with an experienced bankruptcy attorney about your situation and how you can get your finances under control, contact the San Diego Bankruptcy Attorney today at 619-488-6168. With our support, you can reach a more secure financial future.