People may decide to file for bankruptcy for a variety of different reasons. Divorce and unexpected job loss are both common reasons that people file for bankruptcy. Medical debt can also leave people unable to meet their financial obligations. Bankruptcy can provide relief for those struggling to pay their medical debts or adhere to a payment plan.
What type of personal bankruptcy is most effective for those with significant medical debts?
Circumstances determine the best solution
There is no specific form of bankruptcy intended for medical debts. Instead, filers have to choose the form of bankruptcy that works best for their circumstances. Typically, medical debts are unsecured financial obligations. They are eligible for discharge in both Chapter 7 and Chapter 13 bankruptcy cases.
Factors other than the origins of the debt largely influence what type of bankruptcy is appropriate. Chapter 7 bankruptcy is the fastest way to discharge unsecured debts. Individuals who have recently overcome major medical challenges may have low enough income to pass the means test required for Chapter 7 bankruptcy.
However, they may have to consider the possible need to liquidate assets. People pursuing Chapter 7 bankruptcy can only exempt certain property. People with assets that they cannot exempt may want to consider Chapter 13 bankruptcy.
In a Chapter 13 case, the filer makes multiple years of payments through the courts. They may have to renegotiate with their medical creditors and make payments toward their medical debts before they are eligible for a discharge. They can protect their assets without any obligation to liquidate property to repay creditors.
Those concerned about medical creditors taking aggressive steps to collect on debts may need help evaluating their options. Discussing income levels, assets and the origins of debts with a skilled legal team can help people decide what type of personal bankruptcy to pursue.
