With healthcare costs skyrocketing, it’s no surprise that more than 60% of petitioners filing for bankruptcy have a significant amount owed in medical debt. If you’re wondering whether you can discharge medical bills in bankruptcy, the answer is yes. However, different types of bankruptcy require you to either give up valuable property or follow a debt repayment plan for some time. This article explains the difference between types of consumer debts and discusses what filing bankruptcy for Chapter 7 or Chapter 13 entails for your financial future.
Types of Debts
Consumer debt is classified into secured debt and unsecured debt.
- Secured debts are loans that are backed by collateral. The lien placed against your personal property allows lenders to repossess it if you fail to make payments. Car loans and mortgages are some of the most common types of secured debt.
- Unsecured debts, on the other hand, don’t have personal-property serving as collaterals for a loan. Medical bills fall under this category, along with credit card debt, income tax, student loans, utility bills, and other types of personal loans. A bankruptcy discharge can wipe out unsecured debts, but bankruptcy laws grant exceptions to certain debts such as alimony, child support, student loans, and tax debts.
Your Options to Get a Fresh Start
There are several types of bankruptcy filings called Chapters, the most common ones addressing personal bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Declaring bankruptcy for Chapter 7 can discharge a debt, including your medical debt. Chapter 7 or liquidation bankruptcies can get debts wiped out by liquidating the assets and liabilities of the debtor to pay off their creditors using the proceeds. As such, you’ll have to surrender property that isn’t protected by bankruptcy exemptions. At the end of the bankruptcy process, you will no longer be liable for debts that have been discharged.
However, a Chapter 7 bankruptcy filing is not for everyone. Aside from having to give up the non-exempt property when you filed for bankruptcy, you’ll also have to pass a means test to qualify for Chapter 7. Talk to a local bankruptcy lawyer to know whether a Chapter 7 bankruptcy is for you and get legal help with your bankruptcy petition.
Chapter 13 Bankruptcy
If you don’t want to give up property in personal bankruptcy, a Chapter 13 bankruptcy may be the debt relief option you need. Chapter 13 bankruptcy filings allow debtors to keep both exempt and nonexempt property. In exchange, you reorganize your debts and repay creditors in a repayment plan that lasts for three to five years.
After filing bankruptcy, the trustee assigned to your bankruptcy case analyzes your monthly income and living expenses to determine how much you need to pay for monthly payments. While most of your disposable income will go towards making payments, your unsecured debts will be paid in full, and your secured debts will be wiped out by the bankruptcy court at the end of your payment plan.
Hire a Bankruptcy Attorney
If you’re dealing with debt, deciding to file for bankruptcy can be your first step to a fresh start. Whether you’re filing Chapter 7 or Chapter 13, the automatic stay can provide temporary relief from harassing phone calls and collection efforts from debt collectors, and you’ll be able to get your medical bills, along with other unsecured debts, wiped out.
If you’re looking for legal assistance to file bankruptcy, call Farmer & Wright, PLLC today to get in touch with experienced bankruptcy attorneys who can discuss your options and help get you out of debt.