Bankruptcy extends a hand to those struggling with medical debt

With the high cost of medical care, many Americans struggle to keep up with medical bills. According to a 2011 report by the Center for Studying Health System Change, 25 percent of families across the nation have trouble paying off medical debt. It is therefore no surprise that medical bills are one of the top three reasons why many people turn to bankruptcy as a solution to their overwhelming debt.

How bankruptcy works for medical debt

For those drowning in medical debt, bankruptcy can offer a fresh start. Bankruptcy works by ultimately granting filers a discharge of their debt, meaning that they are no longer under a legal obligation to repay it. Most individuals seeking to file bankruptcy have two options: Chapter 7 and Chapter 13.

In Chapter 7 bankruptcy, the filer's nonexempt property is sold to pay his or her debts, in full or partially. Although this sounds dire, most people who file for bankruptcy have little or no nonexempt property, so the majority does not lose any property in the process. After the sale of any nonexempt property, the filer is granted a discharge of most debt, including medical bills.

Chapter 13 bankruptcy, on the other hand, takes a different approach. In this type of bankruptcy, there is no sale, allowing the filer to keep all property. Instead, the filer's debt is consolidated into a payment plan. Under the plan, the filer makes monthly payment towards his or her debts over a three to five-year period, paying off the debt in full or in part. Once the repayment period has ended, the filer receives a discharge of most debts that were not fully paid under the plan. The amount of the plan payment is proposed by the debtor subject to court approval. It is quite common in the Western District of Kentucky and the Southern District of Illinois* for the Bankruptcy Courts to approve plans where less than half of medical debts must be repaid.

Post-bankruptcy medical expenses

Bankruptcy will only wipe out the medical debt that a filer incurs before he or she files for bankruptcy. Consequently, it is important to work to keep necessary medical expenses to a minimum after a bankruptcy filing. Experts offer the following money-saving tips:

  • Choose your care carefully: Your health insurance has multiple rules about what kinds of treatments are covered. Do research beforehand to ensure that your healthcare provider is in-network and your treatment is covered under your plan.
  • Review your bill: Billing errors are more common than you might think. Make sure that your bill is accurate.
  • Negotiate: Don't be afraid to negotiate your bill if it is more than you can afford. In some cases, the provider may be willing to waive charges or set up an installment plan.
  • No credit cards: Avoid charging your medical expenses to your credit card if you cannot pay it in full. The high interest rates will only compound the debt.

Consult an attorney

If you are struggling with medical debt, you are far from alone. Although bankruptcy can help many, it may or may not be right for you, depending on your situation. An experienced bankruptcy attorney can review all of your debt-relief options with you and recommend one that would best protect your long-term interests.

* Marcus H. Herbert's bankruptcy practice serves the Western District of Kentucky and the Southern District of Illinois.