What You Need to Know Before Filing for “Medical” Bankruptcy

Medical Bankruptcy

Healthcare costs are one of the biggest expenses modern-day Americans face. It leads many people to wonder if medical bankruptcy is an option.

Even people who have health insurance often find themselves in serious debt after dealing with a medical crisis. And because of this, unpaid medical bills are one of the primary causes of bankruptcy.

Many people consider bankruptcy after a lifetime of otherwise perfect credit just because they suffered a serious illness or injury.

What should you know about medical bankruptcy and whether or not it might help you with your debt problems?

What is Medical Bankruptcy?

First, it’s important to understand that there really is no such thing as “medical bankruptcy.”

Bankruptcy is bankruptcy and differs only based on the chapters, which have more to do with your assets and overall financial situation.

Medical bankruptcy is an unofficial term describing what happens when a person is forced into bankruptcy due to medical debt. Between a quarter and half of all bankruptcies fall into this category.

The other thing that’s important to understand about filing for bankruptcy because of your medical bills is that it won’t just affect your medical bills. This can be positive or negative depending on your viewpoint.

Medical debt is treated the same as credit card debt, personal loans, and other debts that are directly affected by bankruptcy. This means if you file and you have other outstanding debts that qualify for discharge in addition to your medical debt that debt will be taken into account. All unsecured debt gets eliminated, even if your “problem” debt was medical.

Chapters of Bankruptcy and Medical Debt

When you file for bankruptcy, you’ll be listing all of your debts and all of your assets, regardless of their source or type. You must disclose everything about your financial situation and turn a significant amount of control over to the bankruptcy court. This occurs regardless of whether you only wanted to eliminate medical debt.

What the outcome of filing looks like depends on which chapter bankruptcy you choose. In Chapter 7 bankruptcy, many of your assets are liquidated and any remaining debt is discharged after creditors are paid from the proceeds of the liquidation. In Chapter 13, you commit to a repayment plan lasting three to five years, At the end of that period, any remaining unsecured debt is discharged.

To determine whether Chapter 7 or Chapter 13 is right for you, you’ll discuss your situation with your bankruptcy attorney. He or she will administer a means test that lets you know for which chapter you qualify. You can learn more about the bankruptcy means test here.

How Does Bankruptcy Affect My Medical Situation?

The majority of bankruptcy issues are related to your finances. This includes how much you owe doctors and other medical care providers when you file because of medical debt.

But will filing for bankruptcy affect any other aspect of your healthcare situation?

It might.

One of the most common concerns people have when they file for bankruptcy based on their medical bills is whether or not they’ll need to find a new doctor or change anything about their medical care.

Congress partially addressed these concerns in 1986 with the Emergency Medical Treatment and Active Labor Act. This law prevents hospitals from refusing to treat patients who are unable to pay.

However, this law does not always protect you against losing your doctor or your source of treatment. It also does not apply after a person files for bankruptcy.

Medical providers still have the option of refusing treatment to patients who have had debts owed to them discharged. This means if you owed your doctor money and it was discharged when you filed for bankruptcy, he or she can refuse to see you. This tends not to happen, but it’s a risk you need to consider before filing.

Repaying Medical Debt

It’s also important to realize that no laws prevent you from repaying any of your debts after filing for bankruptcy. Some people feel obligated to repay their debts despite the discharge received in bankruptcy. After filing, they can make payments without dealing with additional fees, interest, and penalties, or without making any official commitment.

This means if you want to pay a few dollars each month to your preferred doctor after your bankruptcy is complete, you are free to do so. Some people even find that filing for bankruptcy frees up money earmarked for other unsecured debts. After bankruptcy, they put that toward paying their physician, with whom they have a personal relationship. The lack of a credit card bill means they can pay their doctor.

If you’d like more information about filing for bankruptcy or you’re getting crushed by medical debt and you believe bankruptcy might be an option, we can help. Contact the bankruptcy Law Office of Robert M. Geller at 813-254-5696 to schedule a free consultation.