When you think of people with high amounts of medical debt, you may think of the uninsured. Although it is true that those without insurance often struggle to pay their medical bills, even those with comprehensive health coverage often find themselves in the same situation. Copayment, deductibles, prescriptions, out-of-pocket expenses and, not to mention, the ever-growing number of procedures that are not covered can cause an insured’s costs to skyrocket.
Although the passage of the Affordable Care Act will likely reduce the number of uninsured across the nation by half, experts say that it is likely to exacerbate the problem of underinsurance. Underinsurance occurs when people who are insured cannot afford to pay for their healthcare costs, because even after the insurer has paid its portion of the bills, the amount remaining is still too high to be affordable.
Bankruptcy can offer a solution
Unfortunately, medical debt is one of the top reasons why many people file for bankruptcy in the United States. For many, bankruptcy can offer the relief from unrelenting debt that they are seeking. In general, most individuals have two options when filing for bankruptcy protection: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy can offer many advantages for people who have few assets that are not exempt from liquidation, such as a second home or many motor vehicles. In this type of bankruptcy, a trustee is appointed by the court to sell assets that are not exempt from liquidation to pay the claims of creditors, in whole or in part.
As most people in a position to file for bankruptcy do not have many nonexempt assets, most Chapter 7 filers do not see any of their possessions sold during the bankruptcy process. Once the Chapter 7 bankruptcy process has been completed, filers receive a discharge excusing them from repaying most of their debt they owed when they filed for bankruptcy, including credit card and medical debt.
Conversely, Chapter 13 bankruptcy is better for those who either own nonexempt assets and wish to keep them or those who have a regular income and can repay a portion of their debts. Chapter 13 works by consolidating the filer’s debts into a payment plan. The debts are repaid in whole or in part by affordable monthly payments over a three to five-year period. At the end of the repayment period, the filer receives a discharge of most remaining debts that were unpaid by the payment plan.
A bankruptcy attorney is invaluable
The type of bankruptcy or debt-relief option that would be right for you depends heavily on your personal situation. If you are struggling with debt, it is helpful to consult with an experienced bankruptcy attorney to learn which debt-relief option will best protect your income and assets.