Medical debt is one of the most common reasons people file for bankruptcy. U.S. health care costs reached $4.1 trillion in 2020, and today many individuals remain overwhelmed by medical bills.
Nearly one in five households couldn’t pay for medical care when needed, according to a 2021 Census Bureau study. Filing for bankruptcy can provide significant relief from these financial burdens. It allows you to discharge or restructure your debt, offering a fresh start.
Differences between Chapter 7 and Chapter 13
The two main types of bankruptcy options for individuals address medical debt differently:
Chapter 7 bankruptcy
Chapter 7 is often called liquidation bankruptcy. In this process, a trustee sells your eligible assets to repay creditors. The good news is that many items are exempt in Ohio, such as your home’s equity, cars, household goods and furnishings, wages and other assets.
Once it’s over, you will likely be relieved of your medical debt, even if no reimbursement goes to health care providers. The downside is that it will affect your credit, and you may have to give up some property. Chapter 7 allows people who lack sufficient income to repay their debts. The entire process usually takes about four to six months.
Chapter 13 bankruptcy
Chapter 13, also known as “wage earner’s bankruptcy,” allows you to create a repayment plan to reimburse creditors over three to five years. You’ll use your disposable income to make payments.
This option helps you maintain relationships with your health care providers by repaying some of your bills. The downside is that you commit to a long-term repayment plan, which can be challenging. However, you get to keep all your property.
What other protections does bankruptcy offer?
Filing for bankruptcy offers immediate protections. One of the most significant is the automatic stay, which stops creditor harassment, collection actions and wage garnishments. This legal provision provides you with breathing room to sort out your finances without constant pressure from creditors.
While bankruptcy can severely impact your credit score and may require you to give up assets, it can also provide a way out of overwhelming medical debt. Consulting an experienced bankruptcy lawyer can be beneficial. They can help you navigate the complexities of bankruptcy law and find the best debt relief options for your situation.