Medical debt and healthcare costs can be overwhelming. These costs leave many individuals stressed and struggling to manage their finances. Bankruptcy can be essential in relieving these burdens and offering a fresh financial start.
Discharging medical debt
One of the primary benefits of bankruptcy is the potential to discharge or eliminate medical debt. In both Chapter 7 and Chapter 13 bankruptcy, medical bills fall into the group of unsecured assets, meaning the debt can be reduced or completely wiped out. This can significantly relieve individuals who cannot pay their medical bills due to high costs and limited income.
Chapter 7 bankruptcy
Chapter 7 bankruptcy, or liquidation bankruptcy, allows individuals to discharge most of their unsecured debts, including medical bills. To qualify, you must pass a means test that evaluates your income and expenses. A Chapter 7 Trustee may sell non-exempt assets to pay off creditors. The remaining eligible debts, including medical debt, are discharged. This process typically takes a few months and can offer a quick path to financial relief.
Chapter 13 bankruptcy
Chapter 13 bankruptcy, or reorganization bankruptcy, requires you to create a repayment plan to pay off a portion of your debts over three to five years. The repayment plan includes medical debt. After you complete the repayment period, usually you can discharge any remaining unpaid debt. This option suits individuals with a steady income who can afford to make regular payments but need relief from overwhelming debt.
Impact on credit
While bankruptcy can relieve medical debt, it’s essential to consider its impact on your credit. Bankruptcy will remain on your credit report for several years, affecting your ability to obtain credit in the future. However, many individuals find that the benefits of discharging their medical debt outweigh the temporary negative impact on their credit.
Understand your options
Medical debt and healthcare costs can add up quickly over time. Bankruptcy can be vital in managing these costs. Understanding the options available through Chapter 7 and Chapter 13 bankruptcy can help individuals make informed decisions and regain financial stability.