Many people believe bankruptcy is the result of living beyond their means or overspending however the reality is that over 60% of all bankruptcies filed are the result of overwhelming medical bills.
Nearly 80% of bankruptcy cases involving medical debt were from people who had health insurance. Unfortunately, many policies have high annual deductibles and cap how much they will payout in a year.
Most medical bankruptcy cases are filed by well-educated, middle class homeowners. In fact some reports show most of Americans are one serious illness or accident away from bankruptcy.
Recessions, lay-offs, and cutbacks have left the average person with depleted savings just trying to keep their families going. More people are using savings everyday to pay living costs then just ten years ago.
Can you file bankruptcy only on medical bills?
You may have heard the term medical bankruptcy. This is not a type of bankruptcy and you cannot simply file for bankruptcy just on your medial debt. While filing bankruptcy to include only medical bills may seem like a good solution, you must include all of your unsecured debt.
The government views medical debt the same as credit cards and loans. In order to file, you must include all of your debts and taxes if they are owed.
The reason behind this is that bankruptcy is a legal proceeding and the courts cannot say one debt collector is more deserving of the money owed them then another. If they allowed you to file only on certain bills, then it would be seen as them agreeing that one company is more deserving of their money.
Many people think this means they will lose their homes, household goods, or vehicles. In most bankruptcy cases, this is not the truth. Most states have exemptions to protect these items. You will need to consult a lawyer that specializes in bankruptcy to discuss your individual case.
If I cannot pay my medical bills can they come after me?
Medical bills will not go away if you just ignore them. In fact not paying them can end up making your financial situation worse. Your doctor’s office or hospital will bill you for any amount that is not covered by your health insurance and can send you bills until the balance is paid in full. If you do not respond to these bills, they will notify you and turn your debt over to a collection agency. This means they now own your debt. Many of these debt collection agencies often use pressure tactics such as daily phone calls in an attempt to collect their money. Collection notices are also posted on your credit report and will lower your credit score.
Debt collection agencies also have the power to file a lawsuit against you. You will be notified by the court and required to appear. The courts will give you the chance to defend yourself or settle with the collector. If you fail to show, it is considered a forfeit and a judgment will be issued.
The collection agency can use this judgment to garnish your wages and any tax refunds owed until it is settled. This means your employer will be notified of the debt and will be required to send a portion of your paycheck. They may also put a lien on any property you own. The debt is then required at the register and if you try to sell the property, the amount you owe will be sent to the collector from your profits.
What are some things I can do to prevent filing bankruptcy due to medical bills?
There are some simple steps you can take to avoid getting overwhelmed with medical debt. First, make sure you have adequate health insurance. Many people take plans with higher deductibles to lower costs and hope they never need to use it. Get the lowest deductible you can afford.
You should also try to have at least three months’ worth of income in a savings account. This type of emergency fund can cover unexpected medical bills if needed.
If you already have medical bills, do not ignore them. Contact your provider and see if you can negotiate a payment plan that is affordable. Some companies may also be willing to lower the amount owed if you can prove it is a financial hardship. They would rather work with you then send the debt to collections.
There are also non-profit organizations that can help. They use grants and private donations to help people in finical crisis pay medical bills. Many hospitals will have a list of organizations in your state in which you can apply. Make sure they are non-profit though.
Finally, always think twice about using loans or credit cards to pay medical bills. This will only add interest charges to bills you cannot afford already and increase the amount you will have to pay.
How do I file for bankruptcy?
If you decided to file for bankruptcy to alleviate medical debt, you will need to research your states laws. Every state has unique laws as to what you can and cannot do when filing.
You will also need to decide whether you want to file for a Chapter 7 or Chapter 13. Chapter 7 bankruptcies will involve the courts appointing a Trustee to you. This person will decide how to liquidate your assets and settle your debt. A Chapter 13 creates a repayment plan based on what you can afford for three to five years. After this period, any unpaid debt is discharged.
With proper research and preparation, you can file a bankruptcy on your own although you really should always consult with a lawyer who specializes in bankruptcy law. They can help make sure your best interests are protected and help you choose which type to file.
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