Dealing with a hefty medical bill may be burdensome. Besides the accumulation of medical bills, you may not be able to work and earn an income after an illness. Therefore, when a medical tragedy strikes, even a financially stable person may not stand. Having insurance coverage does not entirely shield you from unmanageable medical bills. You may reach a point when you have to meet medical bills from your pocket, and this may prove challenging. At Los Angeles Bankruptcy Attorney, we assist clients who are dealing with unmanageable medical bills to file for bankruptcy. Our attorneys have vast experience in California bankruptcy law; they will walk with you systematically.
The State of Medical Bill in the United States
Medical bankruptcy is not an official category of bankruptcy. It only forms one category of debt that is considered when you file for bankruptcy. Therefore, filing for bankruptcy can help you handle your financial bills. According to findings from past studies highlighted in the American Journal of Medicine, more than 60 percent of all personal bankruptcies in the U.S. relate to medical expenses. This particular study is a clear indication of the seriousness of medical bills in the current world. It also indicates that more people realize that filing for bankruptcy is a viable option for dealing with medical bills.
Another study from academic researchers reinforced that in the United States, most people file for bankruptcy for one reason, medical bills. Of all bankruptcies filed in the U.S., 66.5 percent of them are tied to medical bills. Every single year an estimated 530,000 American families file for bankruptcy because of medical-related issues. Most families do not have enough money to cover simple medical emergencies, let alone huge hospital bills. A recent study by Bankrate, a personal finance website, outlines that only 40 percent of Americans have enough savings to cover a $1000 medical emergency bill.
More than 1/3 of cancer survivors in the United States go into debt due to the hefty medical expenses. More than 3% of the cancer survivors file for medical bankruptcy. According to the Consumer Financial Protection Bureau, the commonly unpaid bills sent to collection agencies are medical bills. The current medical situation in America could only get worse since the rate of uninsured individuals is going up. Many people are signing up for cheaper but tricky health insurance plans. Many Americans are joining high-deductible health insurance plans that are unreliable. Most of these plans require patients to pay thousands of dollars before insurance comes in.
Large medical bills often result from emergency room procedures and surgeries. A hospital may be within a patient's insurance program. However, the individual doctors at the hospital and ambulance services, for instance, may not be within the insurance cover.
A lead author of the study, a lecturer at Harvard Medical School, and a distinguished professor at Hunter College, Dr. David Himmelstein, emphasized the medical bills crisis in the United States. In his words, unless you are Bill Gates, you may only be one illness away from bankruptcy. David further observed that health insurance offers little protection for middle-class Americans. Most Americans have policies with many loopholes and deductibles. David points out that in the face of prolonged illness that causes job loss, even the seemingly reliable job-based insurance cover vanishes.
Overview of Medical Bill Relief
Bankruptcy may help you erase or reduce your medical bills. Medical bills are handled differently under the two chapters of California bankruptcy law. You may either file for bankruptcy under chapter 7 or under chapter 13. One chapter may be a better bankruptcy option for you depending on factors such as your long-term goals, the number of your medical bills, and your financial resources:
Chapter 7 Medical Bill Relief
Chapter 7 bankruptcy is the most common type of personal bankruptcy in the United States, and it is known as liquidation bankruptcy. Before filing a petition for bankruptcy under chapter 7, you have to meet some federal bankruptcy requirements. One such requirement is the completion of pre-bankruptcy credit counseling.
Upon meeting all the pre-bankruptcy requirements, your attorney assists you to file bankruptcy paperwork. The crucial paperwork includes a petition for bankruptcy and valid supporting documents that highlight the debts, income, assets, and other relevant financial details.
After reviewing the documents, the court may decide to proceed and assign a trustee to your case. Upon examining your property, the trustee may sell some of your possessions to your creditors to help repay your debt. However, with the help of a bankruptcy attorney, you can strategically make use of bankruptcy exemptions under chapter 7 to help keep most of your property.
After your debts have been settled to the greatest extent possible, and after completing some additional procedures, the court may grant you discharge. Discharge is only granted if there are no surrounding issues to your case. The discharge helps relief liability for your remaining debts as long as the debts are dischargeable. Dischargeable debts are debts that can be erased in bankruptcy.
Under chapter 7, before receiving a debt discharge, you may be required to make some payments towards your medical bills. In most cases, medical bills are unsecured, and they do not count as priority bills. Therefore, while paying debts during a bankruptcy process, the medical bills may have a lower priority than other debts such as child support or employee compensation.
Chapter 13 Medical Bill Relief
Chapter 13 is also a common form of personal bankruptcy though it is less prevalent than chapter 7 bankruptcy. The chapter 13 bankruptcy also goes by the name reorganization bankruptcy. Unlike in chapter 7, if the process goes well, none of your assets will be at risk of liquidation under chapter 13 bankruptcy. However, under chapter 13 bankruptcy, you have to consent to a long-term repayment plan for your debt. This plan is called the plan of reorganization. Under the plan of reorganization, you are required to use your disposable income to make repetitive payments over 3-5 years.
After following the requirements of your reorganization plan and satisfying all the other conditions of bankruptcy, the court may grant you discharge similar to the chapter 7 discharge. The discharge will help wipe out all the remaining debts as at the end of the reorganization period. Therefore, after completing your reorganization plan, your medical bill may be wiped away.
Filing for Bankruptcy
Often, people dismiss bankruptcy and do not consider it a viable option of dealing with hefty debts. Although filing for bankruptcy may have undesirable consequences, the benefit it offers outweighs the consequences.
If you are drowning in medical bills, it may be time to consider either a chapter 7 or chapter 13 bankruptcy. Besides lowering or wiping out your medical bills, bankruptcy may help you retain your valuable property, get more time to repay the medical debt, avoid utility shut-off, and help you begin the process of rebuilding your credit history. Before getting started, it is always advisable to analyze your financial situation together with your bankruptcy attorney. There are certain factors that you should understand before filing for bankruptcy under either chapter 7 or chapter 13.
While for filing for medical bill bankruptcy under chapter 7, some of the things you should have in mind include:
Under chapter 7 bankruptcy law, you can include any medical bill, including medical costs charged to credit cards. Upon filing for bankruptcy, you receive immediate relief from debt collection procedures. After filing for bankruptcy, most creditors will not be allowed to call you or to carry out debt collection procedures. The law may even temporarily stop all foreclosure and eviction processes that may be underway.
Filing for bankruptcy under chapter 7 fairly takes between 90-120 days from the date of filing the petition to the time your debts are discharged. This bankruptcy option offers a quick solution, as you can be relieved of your medical bills in only four months after initiating the bankruptcy process.
Effect on Healthcare Services
After filing for bankruptcy for medical bills under chapter 7, the relationship between you and your medical practitioner may suffer. Consequently, it may be hard for you to seek further medical care. However, under the provisions of the law, hospital emergency rooms should always be open to all patients and treat them even if they cannot meet medical costs. However, you may not have access to your doctor's office after failing to pay your medical bills.
In a case of bankruptcy, medical bills are not priority bills, and the chances of clearing medical bills are always low compared to priority bills. Therefore, in most cases, medical facilities do not receive payments if a patient files for bankruptcy. It is for this reason that the relationship between patients and medical practitioners suffers. It is common for some individuals to commit to paying medical bills even after filing for bankruptcy to maintain a good relationship with their doctors.
Effect on Your Credit Score
Bankruptcy under chapter 7 may adversely affect your credit score for a period of up to ten years. Bankruptcy has far-reaching effects on credit scores than any other credit-related activity. If you file for chapter 7 or chapter 13 bankruptcies, for instance, your credit score may decrease with between 160 to 220 points. This decrease may reduce a good credit score to a fair or poor score.
With a poor credit score, it may be hard to qualify for auto loans, home loans, or credit cards in the future. However, the negative impact on your credit score can decrease over time. After the bankruptcy period, you can start rebuilding your credit score. For instance, if you acquire new loans in the future and pay them well, your credit score will improve. It is crucial to understand that failing to file for bankruptcy and allowing your debts to go to collections will also have a detrimental impact on your credit score.
Effect on Your Assets
By filing for bankruptcy under chapter 7, you risk losing assets such as your home or other assets. The law may slightly vary from state to state. However, under chapter seven, the allocated trustee has to sell your property and settle some of your debts before seeking a discharge for the remaining debts.
After applying for bankruptcy under chapter 7, many of your unsecured debts will be eliminated alongside your medical bill. This elimination will include personal loans and debts from credit cards. Therefore, it is imperative to consider if you hold other debts, but you only want to deal with the medical bill.
If you decide to file for bankruptcy under chapter 13, some of the effects that you should expect include:
- Gradual Debt Relief- Unlike bankruptcy under chapter 7 that offers immediate relief for medical bills, filing for bankruptcy under chapter 13 will offer you gradual debt relief. You will follow a systematic path towards the discharge of the debts you are unable to meet.
- You are allowed to gradually pay your medical debt within a period of three to five years. The set monthly repayments will depend on what is affordable to you. During the repayment period, all your disposable income goes toward your debt.
- If you fail to honor the set payment plan or abandon other crucial obligations such as child support or filing taxes, you may face a risk of losing your property. By adhering to the set payment plan, the remaining debt by the end of the repayment period may be offset.
- Just like in the case of filing for bankruptcy under chapter 7, your credit score may go lower.
- Filing for bankruptcy under chapter 13 may help you maintain a good relationship with your health practitioner, unlike bankruptcy under chapter 7. You may not be able to make the full payment of your medical bill. However, you will make some monthly repayments towards the medical debt, and this will help maintain a good relationship with your doctor.
Alternatives to Filing for Bankruptcy for Medical Bills
After weighing the consequences of filing for bankruptcy, you may consider other alternatives for dealing with your medical bill. You may go for alternative methods to avoid the adverse impacts of filing for bankruptcy on your credit score, for instance. Alternative debt handling methods include:
Agreement with the Hospital
After realizing that you cannot manage to repay your medical bills, you should call the hospital and inform your doctor about your predicament. By opening up, the hospital may be willing to negotiate a repayment plan that would be friendly to you. A possible arrangement would be designing an interest-free repayment plan for you. Such a plan would be much better than charging the bill to your credit card as this would accrue interest charges.
Unlike typical creditors, a hospital may be compassionate enough to reason with you regarding your medical bill. Especially if you are not insured, the hospital may be open to negotiation on the amount you owe. Some hospitals have in place charity care programs; under such a program, a hospital may even waive part of the bill!
Credit counseling may help you navigate your way while facing hefty medical bills. Through a credit counselor, you can get your finances on track and agree on a debt management plan with your creditors. However, if you are already struggling with debt, it may be hard to hire credit-counseling services. Hiring this service may add to your financial obligations. The good thing is that some not for profit credit counseling agencies may help you plan your finances at no cost.
It is important to note that even if you decide to file for bankruptcy, you still have to undergo credit counseling, as it is a mandatory bankruptcy procedure.
The Process of Filing for Medical Bankruptcy
After deciding to file for medical bankruptcy, your bankruptcy attorney will walk with you through the bankruptcy process. Some steps to undertake while filing for medical bankruptcy include:
- Developing a list of creditors- this list contains all creditors associated with your medical costs, including the relevant medical care providers. Ensure that you outline all information relating to creditors such as their addresses and account numbers relating to the medical debts.
- You also have to organize and present proof of your income. The income proofs should be accompanied by your federal tax returns.
- You have to present copies of all account statements from different financial institutions associated with your medical bills.
- Decide on the particular form of bankruptcy that you are interested in filing and obtain the relevant petition forms for your bankruptcy of choice.
Find a Bankruptcy Attorney Near Me
Even though there is no specific bankruptcy that purely addresses medical expenses, there are several bankruptcy options, under which you can seek relief for medical expenses. If you consider filing for medical bankruptcy, it would be wise to contact a bankruptcy attorney to guide you through the process. Bankruptcy law is intricate, and if you choose to go it alone, you may not be able to negotiate and have your medical debts discharged. Contact Los Angeles Bankruptcy Attorney at 424-285-5525 and speak to one of our attorneys. We understand that undergoing a medical procedure is hard enough. You do not have to face the additional challenges posed by huge medical bills alone. Contact us today and give us a chance to negotiate on your behalf!