Anyone on social media is bound to have seen numerous posts or crowdfunding pleas from friends or friends of friends who are faced with insurmountable medical debts. In fact, 8 million people have started a campaign for themselves or for a family member, and 12 million people have started a campaign for a friend or acquaintance. This is just the tip of the iceberg.
Sadly, medical debt is a huge problem in our country, affecting 41% of working-age Americans. The issue is not confined to those without medical insurance: even families with insurance face high deductibles, co-pays, and out-of-pocket costs. According to the CDC, more than 4 in 10 Americans have high deductible insurance plans.
What Options Exist for Medical Debt?
- Crowdfunding: According to the CEO of GoFundMe, one-third of their donations go towards people who are raising cash for medical costs. Obviously, this is not a reliable source of money.
- Negotiating: A hospital or doctor’s office may be willing to allow you to make payments without interest.
- Working with the billing department: Ask for a lowered bill — hospitals will sometimes lower bill amounts when you ask for an itemized bill and show a willingness to pay what you can afford on a payment plan.
- Asking for financial assistance: Many hospitals offer financial assistance programs, although some require that you try to qualify for Medicaid first.
- Filing for Chapter 7 or Chapter 13 Bankruptcy: Chapter 7 will wipe out (discharge) your medical debt along with other unsecured debt, but you must have low enough income to pass the means test in order to qualify for it. If you are not eligible for a Chapter 7, a Chapter 13 can force creditors, including medical bills, to take what bankruptcy law says you can afford to pay. Chapter 13 bankruptcy is discussed below.
Reports have suggested that anywhere from 40% to 62% of bankruptcies are due to medical debts. It is difficult to know exactly how many because often people will use credit cards to pay off medical or other bills when they are struggling with debt, and so the reason on a survey may be “credit card debt” even though the situation began as medical debt.
Ten facts About Chapter 13 Bankruptcy and Medical Bills:
#1. You can file for Chapter 13 bankruptcy as long as your secured debts are under $1,184,200 and your unsecured debts (which would include medical debt) are under $394,725.
#2. So, yes, you can discharge medical debts in a Chapter 13 Bankruptcy (also known as the wage earner’s bankruptcy), but it doesn’t happen instantly.
#3. You will be placed on a payment program lasting from 3-5 years that prioritizes your debts.
#4. After you have filed for bankruptcy, you will not have to deal with creditors demanding money. The bankruptcy places something called an automatic stay, which is court-ordered protection that stops all collection efforts against you.
#5. You can keep such secured loans as your vehicle or house as long as you keep making payments on them. A Chapter 13 can help you catch up on payments on these items if needed.
#6. You also must pay child support, alimony, and any back taxes. These are categorized as priority unsecured debts.
#7. All other unsecured debts, like credit card debt, medical debt, and student loans, will be part of your payment plan. Keep in mind the fact that although student loans may be put on hold during the process, you probably will still have to pay them at some point. They generally will not be discharged at the end of the process.
#8. After your Chapter 13 trustee has allocated payments for your secured debts and unsecured priority debts, he or she will lump everything else together into a category called “general unsecured” and work out a plan whereby each creditor gets a pro-rata (proportional) portion.
#9. Most debtors in a Chapter 13 pay a very low percentage of their unsecured debt back and receive a discharge on the leftover balances at the end of a plan. Some people may be able to pay their creditors back in full in the 3-5 years a Chapter 13 plan runs. Some people will fall somewhere in between.
#10. It isn’t possible to select which bills you declare bankruptcy for. All of your financial information (debts, property, and real estate) must be declared and categorized as described above.
When You Complete the Plan, the Court Will Discharge the Rest of Your Debts
You may end up having paid all of your medical bills in full, or you may end up having paid only a small percentage of them. In some cases, you may not have paid any of them.
It doesn’t matter. At the end of the process, your medical debts are discharged, and you no longer owe them.
No situation is completely straightforward, so don’t try to maneuver the intricacies of Indiana’s bankruptcy codes on your own. At Sawin & Shea, LLC, we understand that hiring an attorney to help you file bankruptcy is scary. We are committed to providing compassionate and non-judgmental representation to all of our clients. Our attorneys have helped thousands of people just like you get the fresh start they deserve. We are here to help.