Many people live from paycheck to paycheck. When a medical crisis occurs—a diagnosis of diabetes or injuries from a car accident—the results can be catastrophic not only physically, but also financially. Hospital bills accumulate and can be very expensive. Even those who have savings set aside for just such an emergency can find themselves deep in debt to doctors, hospitals, and testing laboratories. Compounding the stress associated with a health problem or an injury is the likelihood of receiving calls at all hours from collection agencies trying to obtain payment for these extensive medical debts.
Medical bills are unsecured debt. Unlike a mortgage or a car loan, there is no physical property to secure a medical debt and repossess in the event that you are unable to pay it off. However, like credit card debt, medical debt can be discharged through a Chapter 7 or a Chapter 13 bankruptcy. A knowledgeable Los Angeles bankruptcy attorney can help you determine whether pursuing this option is best for you.
What Are the Rules for Discharging Medical Bills Through Bankruptcy?
First, you should be aware that you can’t selectively discharge your medical bills. In other words, you cannot choose to have medical debts discharged, while choosing to pay off other debts. Creditors are not equal, but all your debts must be put in front of a trustee who will then determine their order of priority. Therefore, bankruptcy may not be appropriate for those who only owe small amounts to health care providers but have little or no other debt. This is also true when that debt (medical bills) has not had a serious impact on other debts, such as your ability to make mortgage payments, car payments, credit card bills, or any another debt.
Also, you cannot tack on additional debts after you file your case. Therefore, bankruptcy is only appropriate when the medical debt is so severe it impacts all of your finances, and after all medical bills have been issued. You should carefully check all sources that may bill you after a diagnosis or accident. It is not uncommon for medical care providers to bill you up to many months after the time of care.
Because the bankruptcy code places limitations on the frequency of discharges any individual may receive, you don’t want to receive an additional medical bill that could have been discharged after you have already filed. You will not be able to discharge those amounts, at least not right away. All of your debt, not just your medical debt, must be included when you file. However, the key question is ‘when was the service provided’? This means that even if you have still not received the physical ‘bill’ in the mail, as long as the medical service was provided before you file your bankruptcy, you can discharge that medical bill in your bankruptcy.
What Kind of Bankruptcy is Appropriate to File When Addressing Medical Debt?
You may file for either Chapter 7 or Chapter 13 bankruptcy to discharge your medical bills and debts. Chapter 7 requires you to take a means test to see if you qualify for that category by having an income that is less than the median income for your household size. All of your unsecured debts, including medical debt may be discharged if you file for Chapter 7. In Chapter 13 bankruptcy, you will have to develop a realistic payment plan and repay some portion of your debt. Sometimes, if you need to repay your other creditors (such as your back mortgage payments), then you might not be required to repay any portion of your unsecured debt, including any medical bills you may have. Your creditors will be organized according to priority. Typically, medical debt does not take first priority for repayment because people have non-dischargeable debts, such as alimony, child support, or student loans, or they have secured loans that must be repaid first.
It is important to note that if you have previously received a discharge in a Chapter 7 bankruptcy, you must wait eight years from any prior filing to file another Chapter 7. You may only file for Chapter 13 and receive a discharge if it has been four years since your last filing. You may file for Chapter 13 simply to reorganize and pay creditors, but you cannot receive a discharge unless it has been four years. Other rules apply if you have previously filed a Chapter 13 and now intend to file a Chapter 7.
The good news is that, relative to other kinds of debt, medical bills may sometimes be more easily discharged. Nonetheless, seeking professional help with the bankruptcy process is highly advisable. An experienced Los Angeles bankruptcy lawyer can help ensure that all of your debt is properly accounted for and discharged. Contact Devin Sawdayi at 310-475-9399 or via our online form for advice with your bankruptcy.
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