Even with health insurance, it is still possible to face a financial crisis due to medical debts. For some people, one serious illness in the family can upset their financial situation and lead to the need to make tough decisions. If you are struggling with medical debts, filing for Chapter 7 bankruptcy might be the best option for dealing with them. Before exercising your right to file for bankruptcy, here is what you need to know.
What Happens to Medical Debts in a Chapter 7?
In Chapter 7 bankruptcies, debts are divided into two categories: secured and unsecured. Secured debts are those which has some form of collateral attached to them, such as an auto loan. An unsecured debt has no collateral. Unsecured debts are discharged in a Chapter 7 filing.
Regardless of the amount of the medical debt, the bankruptcy will remove your responsibility for paying it. For instance, if you owe $100,000 in medical bills, the court will discharge, or dismiss, the debts.
The only duties you are required to complete when filing for a Chapter 7 are to meet the basic requirements and cooperate with the court and trustee.
What Are the Requirements?
To be eligible for a Chapter 7 bankruptcy, you have to pass the means test. The test is used to determine if you have the financial capability to pay some or all of your debts. If you cannot pass the test, you might be forced to file for a Chapter 13 instead. The Chapter 13 would require you to pay all or some of your debts over a period of time.
The means test is relatively straightforward. The first part compares your monthly income to the median income in your state. If your income is less than the median, then the amount of disposable income you have is reviewed. Disposable income is determined by subtracting your monthly expenses from your income. If the court believes that you do not have enough income to pay towards your debts, you qualify for a Chapter 7.
Should You File for Bankruptcy?
Just because you are eligible to file for Chapter 7 does not mean that you should. Before filing, you can try to work out a settlement with the medical care provider to pay off the debt. You can also apply for state and federal programs to help cover some or all of the costs of your bills.
It is important to note that time is of the essence when it comes to dealing with medical bills. If you wait too long to file for bankruptcy or take other action, your provider could file a lawsuit against you and win a garnishment.
For help with filing for Chapter 7 bankruptcy, contact a lawyer at a law firm like LeBaron & Jensen, P.C.