The cost of health care is on the rise, and the number of Americans lacking adequate medical insurance coverage is increasing along with it. In this climate, many people have alarmingly high medical debts and have turned to bankruptcy for relief. As long as you qualify, Chapter 7 bankruptcy can effectively eliminate these medical debts.
Classification of debts in Chapter 7 bankruptcy
Since Congress has determined that certain debts are more important than others, not all types of debts are treated the same in bankruptcy. Debts can either be classified as secured or unsecured.
A secured debt is a situation in which a creditor has a lien on your property. The creditor then has the ability to repossess or foreclose on it if you fail to make your loan payments. In this way, the debt is deemed to be “secured” by the property, which acts as collateral. The most common examples of secured debts are car loans and mortgages. Medical debts, on the other hand, are not typically secured by property.
Unsecured debts, which include both priority debts and non-priority debts, are those that are not secured by a piece of property.
Priority debts are typically nondischargeable, meaning that they cannot get wiped out by bankruptcy. These debts typically get paid before most other debts in Chapter 7 bankruptcy. Some examples include debts acquired by fraud, alimony and child support. Medical debts are not considered priority debts.
Nonpriority general unsecured debts don’t receive any special treatment. Thus, they are the last priority and the last to get paid in Chapter 7 bankruptcy. The majority of nonpriority unsecured debts (with a few exceptions, such as student loans) are discharged without any repayment in bankruptcy. Credit cards, unsecured personal loans and medical debts are all classified as nonpriority general unsecured debts.
Treatment of medical debt in Chapter 7 bankruptcy
Since medical debts are treated as nonpriority unsecured debts, they will not receive priority if the trustee can effectively make payments to your creditors. However, even if a portion of your medical debt is paid through your bankruptcy, the remainder will be eliminated when you receive your discharge. Thus, if you are struggling to pay off large amounts of medical debt, a Chapter 7 bankruptcy is often the best option.
Limitations on discharging medical debt
As long as you qualify for Chapter 7 bankruptcy, there is no limit to how much medical debt you can discharge. However, to qualify you must have very low income and pass a disposable income test. If both conditions are met, Chapter 7 bankruptcy could be the best way to ease your burden. Consider the amount of nonexempt assets you have prior to filing, as this might actually make bankruptcy a less desirable solution.
For more information, contact Anthony DeLuca , the best bankruptcy attorneys in Las Vegas.