Can Medical Debt Be Included in a Bankruptcy Filing?

If you’re facing overwhelming medical debt, you’re not alone. Medical expenses are a leading cause of financial distress, and the stress of unpaid bills can make it difficult to manage day-to-day expenses, let alone plan for the future. One option that may relieve this burden is bankruptcy. But can medical debt be part of a bankruptcy filing? In this article, we’ll explore how bankruptcy can help you manage medical debt, the types of bankruptcy available, and essential considerations to keep in mind before filing.

Understanding Medical Debt and Bankruptcy in Florida

Medical debt, unlike secured debt (such as car loans or mortgages), is typically considered unsecured debt. Unsecured debts do not have collateral backing them, which means creditors do not have a right to specific property if you cannot pay. In Florida, as in other states, medical debt can indeed be discharged through bankruptcy. However, the process, options, and impact on your financial future can vary depending on the type of bankruptcy you choose.

Types of Bankruptcy: Chapter 7 vs. Chapter 13

There are two primary types of bankruptcy individuals often file: Chapter 7 and Chapter 13. Each offers distinct paths to managing or discharging medical debt.

Chapter 7 Bankruptcy

Chapter 7, also known as “liquidation bankruptcy,” is the most common type of bankruptcy for individuals struggling with substantial unsecured debt, including medical bills. In a Chapter 7 bankruptcy:

• Medical debt: Medical bills can be discharged entirely, allowing you a fresh start.
• Income requirements: Florida uses a means test to determine if your income qualifies for Chapter 7. If your income is below the median income level in Florida, you may qualify.
• Asset considerations: Some assets might be sold to pay off creditors, although Florida’s homestead exemption may protect your primary residence.

The entire process usually takes around 3-6 months, and upon completion, you are no longer legally required to pay back the discharged debts. For many, Chapter 7 provides quick and comprehensive relief from overwhelming medical bills.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is commonly referred to as a “reorganization bankruptcy” and is generally recommended for those with a steady income who want to keep valuable assets, like their home, but need more manageable debt payments.

• Medical debt repayment plan: Rather than discharging medical bills outright, Chapter 13 allows you to repay your debts over a 3- to 5-year period.
• Debt consolidation: Chapter 13 consolidates all debts, including medical debt, into a single monthly payment, which can provide relief from collection calls and allow you to maintain your assets.

This type of bankruptcy is ideal if you have a stable income and can commit to a structured payment plan but need more manageable terms to pay down your debt.

Key Steps Before Filing for Bankruptcy

Filing for bankruptcy is a significant financial decision, so preparation is essential to ensure you’re making the best choice for your situation. Here are key steps to take before filing for bankruptcy due to medical debt:

1. Assess Your Debts and Income: Take stock of all your debts and sources of income. Determine if medical debt is your primary financial burden or if other debts (credit cards, personal loans) are also problematic. This can help you decide if bankruptcy is right for you.
2. Understand Florida’s Exemptions: Florida has specific exemptions that protect certain assets, such as your primary residence, retirement accounts, and personal property, from liquidation in Chapter 7. Knowing these can help you determine which type of bankruptcy is most advantageous.
3. Seek Credit Counseling: Both Chapter 7 and Chapter 13 filings require credit counseling from a government-approved agency within six months before filing. Credit counseling can also provide insight into other debt-relief options, such as debt settlement or negotiation.
4. Consult with a Bankruptcy Attorney: Bankruptcy laws can be complex, and a Florida-based bankruptcy attorney can help you understand how state laws and federal bankruptcy codes apply to your situation, ensuring your assets are protected as much as possible.

Alternatives to Bankruptcy for Medical Debt Relief

While bankruptcy can provide relief, it may not always be the best solution, especially if your medical debt is relatively manageable. Consider these alternatives before filing:

• Debt Settlement: Some hospitals and medical providers are willing to negotiate debts or offer payment plans, particularly if bankruptcy is a possibility.
• Medical Debt Consolidation: This option combines multiple medical bills into a single loan, which may have a lower interest rate or more manageable payment terms.
• Charity Care Programs and Financial Aid: Many hospitals and clinics offer charity care programs or financial assistance, particularly if you have low income or are uninsured.

How Does Bankruptcy Affect Your Credit?

While Chapter 7 bankruptcy typically stays on your credit report for ten years, and Chapter 13 for seven years, many find that bankruptcy can ultimately help improve their credit over time. By discharging or restructuring debt, you reduce the overall debt-to-income ratio, potentially creating a stronger foundation for future financial stability.

Final Thoughts: Should You Include Medical Debt in Your Bankruptcy Filing?

Yes, medical debt can be included in a bankruptcy filing in Florida, potentially giving you much-needed relief from unpaid medical bills. However, consider all options carefully, especially if you’re weighing Chapter 7 vs. Chapter 13 bankruptcy. Understanding the benefits, limitations, and alternatives can help you make the best choice for your financial future.

Disclaimer: This blog is for informational purposes only and is not a substitute for professional legal advice. Always consult with a qualified bankruptcy attorney to discuss your specific situation and explore all available options.