Dealing with a huge medical bill can be an overwhelming experience for any person. Medical emergencies can often bring you under unexpected medical debt, even if you are financially stable. Not only does the cost of treatment start to accumulate, but if the emergency is significant, it may render you incapable of working and earning an income.
If you are in this situation, sometimes the best option that can relieve you from these debts is to file for bankruptcy. However, you need to be careful with the option you go with since filing for medical bankruptcy may also have unnecessary consequences on your other debts, important assets like a car or house, and your credit scores.
To best understand your options, you need to consult an experienced bankruptcy attorney. At San Diego Bankruptcy Attorney, we specialize in helping any person in San Diego seeking to file for bankruptcy or those that have any questions about the procedure. In this article, we will focus on how filing for bankruptcy can provide relief for your medical bill.
Does Medical Bankruptcy Exist?
Medical bankruptcy isn’t a real thing in California. It doesn’t exist. Even though you are filing for bankruptcy to eliminate overwhelming medical bills, you will not be able to limit your petition only to outstanding medical debts. California bankruptcy laws were made to be as fair as they can be to both the debtor and the creditors. A debtor, in this case, is the person filing for the bankruptcy petition.
Medical bills are considered to be in the same category as personal loans, utility bills, the money you borrowed from family and friends, and credit card debts. Since they are considered similar, the bankruptcy law treats them in the same manner.
Thus, if you are filing a bankruptcy petition seeking medical bill relief, you will also be required to remove any other unsecured debts that you have as well. Note that bankruptcy does not give you the option to pick and choose what debts to eliminate.
When filing a bankruptcy petition, you have to list all your assets, real estate, and debts. Additionally, you have to disclose all family income and expenses even if you won’t be filing for bankruptcy together with your spouse. You will also provide your financial details like recent debt repayments, sales, or property transfers.
Should You File for Chapter 7 or 13 Bankruptcy if You Want to Clear Your Medical Debt?
It’s true that bankruptcy might help you lower or completely clear your medical bill. However, in California, medical bills are treated differently depending on the bankruptcy chapter. Thus, you have to understand first how filing for bankruptcy will affect your medical bill before filing it. Based on your financial situation, the medical debt amount you have incurred, and your goals, you may find that one chapter is a much better option compared to the other.
Medical Bill Relief under Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also referred to as liquidation bankruptcy. It’s the most common form of bankruptcy in California, and across the U.S. Just like chapter 13 debtors, debtors in chapter 7 have to comply with certain bankruptcy requirements for them to qualify to file a bankruptcy petition. For instance, if you want to file for bankruptcy, it is compulsory that you undergo a pre-bankruptcy credit counseling.
After you have completed the counseling and fulfilled other requirements successfully, you can go ahead and file your bankruptcy paperwork. You will need the help of a bankruptcy attorney to ensure you file the correct paperwork. Your bankruptcy petition should be accompanied by supporting documents like financial papers outlining the debts, income, assets, expenditure, and other important financial information.
If after reviewing the documents, the court approves them and carries on with the petition, it will randomly select a trustee and assign him or her to the case. Once the trustee has assessed your assets, he/she may sell a few of them to your creditors to help clear your debts. But, you may most likely retain most of your entire property by tactically using bankruptcy exemptions. Our attorneys may be able to help you assess the exemptions carefully.
After you have repaid your debts to the maximum depending on your financial situation, and have met multiple additional procedural conditions, you will be granted a discharge in case there is no problem with the case. This discharge clears liability for the outstanding dischargeable debts. Dischargeable debts are those debts that can be wiped out in bankruptcy.
Under chapter 7 bankruptcy, medical bills are dischargeable. This means that your bill will be erased once your case ends. However, under this chapter, before your debt can be discharged, you might be needed to clear off part of your medical bill. However, since medical bills are unsecured debts and aren’t priority debts, you will typically get a lower priority as compared to other debts under this chapter.
Chapter 7 provides immediate medical relief
Any medical bills can be discharged in bankruptcy under chapter 7. This includes healthcare bills charged to your credit cards.
Additionally, this chapter can provide quick relief from any other debts you have. Once your petition goes through, it will automatically stop most of your creditors from collecting or calling you. It can also prevent foreclosure and eviction processes.
Filing for bankruptcy under chapter 7 can be a quick solution to settle your medical bills because it will only take approximately three to four months from the date of filing to the date you receive a discharge of your debts. This means that it only takes about four months to be free from overwhelming medical bills.
How nonmedical debts are affected
As earlier indicated, filing for ‘medical bankruptcy’ can be advantageous if you have other forms of unsecured debts you want to be cleared. This is because as the medical debt is wiped out, the other unsecured debts are discharged along with it. However, if you only want to clear medical bills but have other debts as well, filing chapter 7 bankruptcy may not be an ideal option.
The effect on your property
We could say that the most serious consequence of chapter 7 bankruptcy is a possible home foreclosure and loss of your other property. In most cases, your property will be sold to pay your creditors.
Effect on Healthcare Services
You may be concerned about the relationship with your doctor once you file for bankruptcy. If you file for bankruptcy under chapter 7, it may have an impact on your relationship with your physician or make it hard to receive medical care. Legally, it is required that hospital emergency rooms treat patients irrespective of whether they can pay or not. However, your doctor may refuse to treat you because of your medical debts.
Still, other doctors may hesitate to take that extreme decision. They would understand the purpose of bankruptcy and why you had to file the case. Most of them will retain you as their patient provided you are willing to repay your debt.
However, since most people are uncertain of what will happen, they choose to pay off their medical bills even after they file for bankruptcy so that they can be sure of maintaining good relationships with their physicians.
Effect on credit rating
Chapter 7 bankruptcy will hurt your credit score for ten years. However, the impact on your credit rating may decrease as time progresses.
Is there a Limitation on Eliminating Medical Debt Under this Chapter?
Legally, there’s no cap or limit on the amount of medical bills one can discharge under this chapter. However, you have to qualify to file this type of bankruptcy to receive the discharge. For you to qualify, your income level has to pass a disposable income means test. This means it should be low enough. Additionally, note that filing for a chapter 7 bankruptcy may not be ideal for you in case you have a larger number of assets that you cannot exempt even if you passed the disposable income means test.
Medical Bill Relief Under Chapter 13 Bankruptcy
A chapter 13 bankruptcy is less common compared to chapter 7. However, it is still a common form of bankruptcy in California that can help pay your medical debts. This type of bankruptcy is also called reorganization bankruptcy.
Chapter 13 bankruptcy is quite different from bankruptcy under chapter 7. In this chapter, in case the bankruptcy filing is successful, none of your property will risk liquidation. However, you have to create a repayment plan that will last over time. The plan will require you to make recurring payments using your disposable income over a timeframe of three to five years, hence the name ‘reorganization bankruptcy.
If you adhere to the terms of your repayment plan and meet all other requirements, the court will discharge your debts, just like in chapter 7. The discharge should erase the outstanding dischargeable debts after your repayment plan period elapses. Like in chapter 7, medical bills are also dischargeable in this chapter. This means that the moment you complete your repayment plan, your remaining medical bill can be wiped out.
Impact of Chapter 13 Bankruptcy on Your Healthcare Services
Chapter 13 bankruptcy can help you maintain a good relationship with your doctor as compared to chapter 7. You might not be able to pay your debt in a lump sum, but you will reduce the debt by making monthly payments. Due to this repayment plan, you might end up paying your doctor more than you owe him/her.
The effect on credit score
Like in chapter 7 bankruptcy, your credit rating will also be negatively affected. However, unlike in chapter 7 bankruptcy, the effect will not last as long. Instead of ten years, the effect will last only for seven years.
Would You Still File for Bankruptcy if the Patient Dies?
One question you should be asking yourself is what happens if your loved one dies while undergoing treatment. Does the medical bill go away, or would the doctor or collection agency still pursue payment? Would you be required to seek medical relief in the case the bill has to be paid, and you cannot afford it?
The answer to this depends on the property the deceased had, the legal relationship between the creditor and the deceased, and what California State laws demand. However, the creditor may try to enforce certain laws.
The family of the deceased has a duty of paying any outstanding medical debt incurred while the deceased was still alive. If you lack the resources to clear the debt, you should consult a bankruptcy attorney to give guidance on whether filing a bankruptcy is an option.
As we mentioned earlier, filing for bankruptcy comes with consequences. If you have a good credit score, you can settle your huge medical debt by going for options that will help you maintain the score and regain control of your debt payments. These methods include:
Negotiating a settlement plan with your doctor
To start with this option, ensure you have settled all your insurance payments. After that, you can call your doctor to negotiate on how to settle your debt. Working directly with your creditors may open up better possibilities like a repayment plan that is interest-free. Additionally, if it is an uninsured medical bill, your doctor may waive a certain percentage of the cost. Several hospitals routinely discount or waive debts for patients that are not insured.
You can consider seeking the services of a credit counselor who may help you have control of your financial situation. He or she can work with you to create a considerable budget or help you to come up with a debt management plan that favors both you and your creditor.
You should keep in mind that credit counseling is not the same as debt settlement. Debt settlement is not free, and it can cause more problems for you if you are already struggling with paying your debt. On the other hand, most of the credit counseling companies are non-profit. Thus, they may provide their services free of charge.
Seek help from assistance programs
Many hospitals and other medical facilities have assistance programs that will grant you reduced or free hospital care as long as you qualify. Free medical care depends on your income level. For example, the hospital may cover bills for the necessary medical services through the Hospital Care Assurance Program.
Additionally, non-profit medical facilities that are exempted from federal tax may consider your financial hardship as far as paying medical bills is concerned. You can contact your medical provider for more details and apply for coverage that applies to you.
Government programs for medical debts
The federal government provides multiple agencies that help patients clear their medical debts. They do this through sessions and consultations that educate debtors on high-interest rate charges and hostile collection practices.
In case you have done everything, but your medical bill is still too high to handle, you can approach debt relief companies which may help you to negotiate a lower bill amount without having to file for bankruptcy. They will seek to have a given percentage of the debt forgiven. This way, you will be left with a small percentage to pay.
What Happens if You Don’t Seek Medical Bill Relief?
If you do not take any action to settle your medical bill, the debt will go into medical bill collections, which are quite common in California. The collectors of medical debts have to adhere to specific regulations. They are not supposed to lie or harass debtors or use any other unfair means.
However, the procedure to collect can still be harsh. For instance, in 2012, it was discovered collection companies had representatives who worked in hospitals and other medical facilities’ emergency rooms. These representatives attempted to collect payment for treatment that patients had not received.
Debt collectors often break the law in several ways. For example, if a debt collector found his/her way in a hospital, they may not make clear that they are debt collectors. They try to blend in with hospital staff and try to have access to patients’ health records, which violates privacy laws. To avoid all these uncertainties with debt collectors, we advise you to seek medical bill relief. Dealing with a creditor is much easier than hostile debt collectors.
Contact an Experienced San Diego Bankruptcy Lawyer Near Me
Do not rule out bankruptcy as a possible option until you have talked with a skilled bankruptcy attorney about your financial situation. If you feel you are overwhelmed by medical debt, you may want to consider bankruptcy under chapter 7 or 13. In addition to erasing or lowering your medical debt, bankruptcy may also enable you to retain valuable assets, buy more time to repay your loans, prevent utility shut-off, and improve your credit rating.