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Medical debt under bankruptcy

On Behalf of | Jan 22, 2021 | Bankruptcy

Many people in Texas don’t think about the cost of medical treatment until they receive bills. Sometimes, the debt gets unmanageable and they can no longer pay, which makes bankruptcy an option. However, medical debt gets treated differently depending on the type of bankruptcy.

Medical debt under Chapter 7 bankruptcy

Chapter 7 helps a debtor remove unsecured debts, which means they don’t have collateral connected to them. Unsecured debts include medical debt, credit cards and past-due utility bills. While debtors cannot file a single debt under any kind of bankruptcy, they may list medical debt in the petition along with the other debts.

Debtors must also pass a means test to determine if they have enough money to pay the debt. They will be required to sell non-exempt assets, but they typically don’t lose property over medical debt alone.

The court assigns a trustee to value assets and sell them to pay creditors. Priority debts, such as taxes or court fines, commonly get paid first since they come with more consequences if not paid. In four to six months, the debtor receives a discharge and does not owe remaining debt.

Medical debt under Chapter 13

Chapter 13 allows debtors to pay debts slowly with a plan devised by the court based on income. If a debtor doesn’t qualify for Chapter 7, the court may convert the bankruptcy to Chapter 13. To qualify, the amount of debt cannot exceed $394,425 in unsecured debt and must not exceed $1,184,200 in secured debt.

Unlike Chapter 7, the debtor does not have to sell personal property to pay creditors. However, they have to take a credit counseling course to learn if they really need to file. While a discharge takes three to five years, the individual still owes less debt at the end of the bankruptcy, and remaining unsecured debts get discharged.

Bankruptcy gives a debtor relief, but it can stay on credit reports several years, and errors in bankruptcy filings often cause dismissals. Contacting an attorney may lower a person’s chances of cases getting dismissed by ensuring that the person completes all applications properly.