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How medical debt gets handled in bankruptcy

On Behalf of | Feb 9, 2021 | Bankruptcy

Bankruptcy offers a debtor in Waco, Texas, a legal way to remove certain debts. Statistics show that medical debt accounts for over 60% of bankruptcy cases because of the cost of health care and lost wages from missing work. Sometimes, medical debt can occur even with good health insurance since a policy doesn’t cover everything. Each debt in bankruptcy gets handled differently.

Bankruptcy for only medical debt doesn’t exist

While debtors may file bankruptcy because of medical debt, they cannot file for medical debt alone. The debtor must list their secured debts, unsecured debts, personal assets and real estate on the petition they submit to the court for consideration. A secured debt has collateral attached to it, such as a mortgage or vehicle loan.

Debts get further divided into priority debts and non-priority debts. Medical debts classify as unsecured non-priority debts, which means the debt has no collateral attached. Non-priority debts include those that won’t have any legal consequences for not paying them, such as utility bills.

Chapter 7 and Chapter 13

Many debtors file Chapter 7 bankruptcy, which sells non-exempt assets to pay creditors. Some non-exempt assets may include second homes, second vehicles, valuable collections and jewelry. A trustee handles the valuing and selling of the assets and divides the proceeds among creditors. After debts get paid, the debtor receives a discharge in four to six months if they meet all requirements.

Debtors who don’t qualify for Chapter 7 or wish to pay some debt over time may file Chapter 13. The court constructs a payment plan based on the debtor’s income and gives them three to five years to complete it. Chapter 13 commonly allows debtors to keep property or stay in business as long as they follow the conditions of the payment plan.

Bankruptcy law must be followed carefully for a successful case. Since the laws are complex, a debtor should find legal assistance.