The Role Of Bankruptcy In Resolving Medical Debt

Medical debt can be a tremendous burden, one that even the most careful individuals and families can find themselves saddled with after unforeseen medical issues. At Loris Law Firm, we understand the strain that medical expenses can place on your finances. Bankruptcy may offer a viable solution for those overwhelmed by such debts.

Role 1: Immediate Relief from Creditors

When faced with overwhelming medical debt, the immediate benefit of filing for bankruptcy in Mobile, AL is the protection it offers against creditors. This protection is legally enforced through what is called an “automatic stay.” The moment a bankruptcy case is filed with the court, this automatic stay goes into effect, effectively freezing all debt collection activities against you. Automatic stay covers:

  • Stop Harassment

Creditors are legally barred from contacting you directly. This includes stopping phone calls, emails, and letters demanding payment. This halt in contact can provide a significant relief from the stress associated with constant demands for payment.

  • Halt Legal Actions

The automatic stay puts a pause on most creditor actions to collect debts, including ongoing or impending lawsuits for unpaid debts, wage garnishments, and even evictions if they pertain to unpaid rent that is considered unsecured debt.

  • Utility Disconnections

It can also prevent the disconnection of utilities for up to 20 days. For families facing financial difficulties due to medical bills, this provides a cushion to maintain essential services while sorting out their finances.

The duration of the automatic stay depends on the specifics of the bankruptcy case. In a Chapter 7 bankruptcy, the stay lasts until the debts are discharged, typically a few months. In a Chapter 13 bankruptcy, the stay can last for the duration of the payment plan, which is generally three to five years. While the automatic stay is powerful, it has its limitations. Certain actions are not stopped by the filing of bankruptcy. These exceptions include:

  • Child Support and Alimony

Collection actions for ongoing child support or alimony obligations will not be stopped by the automatic stay.

  • Certain Tax Proceedings

The IRS can still audit you, issue tax deficiency notices, demand tax returns, and assess taxes and demand payment of such assessments.

To fully leverage the protections provided by the automatic stay, it’s crucial to file for bankruptcy promptly when facing insurmountable medical debt. Early filing can prevent the accrual of further penalties and the deepening of financial distress. For more detailed advice tailored to your specific situation, schedule a consultation with our bankruptcy lawyer in Mobile, AL.

Role 2: Erasing Unsecured Medical Debts through Chapter 7 Bankruptcy

A major benefit of Chapter 7 bankruptcy for residents of Alabama is its capacity to completely eliminate unsecured debts, including medical bills. This process provides a clear path to financial recovery by discharging debts that you might otherwise struggle to pay.

Unsecured debts are those not backed by collateral. Medical bills fall into this category along with credit card bills and personal loans. Unlike secured debts like mortgages or car loans, unsecured debts don’t involve any property that creditors can claim. Here are the two Chapter 7 discharge processes:

  • Liquidation

In Chapter 7, your non-exempt assets might be sold to pay off some of the debt. However, many individuals find that they don’t have enough non-exempt assets for this to affect them significantly, allowing them to discharge substantial debts with minimal loss.

  • Discharge of Debts

After any applicable liquidation, the court typically discharges remaining unsecured debts. This means you are no longer legally required to pay the discharged debts, and creditors cannot pursue collection on these debts.

When considering Chapter 7 bankruptcy, there are a few critical considerations. If you’re overwhelmed by medical bills and considering bankruptcy, read this. 

Role 3: Structured Repayment through Chapter 13

Chapter 13 bankruptcy provides a structured approach for individuals with consistent income to manage and resolve substantial medical debt without losing their assets. This form of bankruptcy reorganizes medical and other debts into a manageable repayment plan over three to five years. Highlights of Chapter 13 for medical debt:

  • Repayment Plan

Medical debts are consolidated into a single monthly payment that fits your budget, calculated based on your income and essential living expenses.

  • Debt Limits

Your total unsecured debts, including medical bills, must be below $465,275 as of 2023 to qualify for Chapter 13.

  • Asset Retention

Keep your home, car, and other valuable assets as Chapter 13 focuses on repayment rather than liquidation.

Chapter 13 bankruptcy provides immediate relief from medical debt collectors through an automatic stay upon filing, halting all collection efforts. It also helps organize overdue medical bills into a structured repayment plan, allowing you to manage finances more effectively without immediate creditor pressure.

To utilize Chapter 13 effectively for medical debt, ensure you have a stable income that can support the monthly payment plan. For personalized guidance on using Chapter 13 to resolve medical debt, contact us today.

A New Beginning

Deciding to file for bankruptcy is not an easy choice, but it can be the most effective way to handle excessive medical debt and regain financial control. At Loris Bankruptcy Law Firm, we are dedicated to helping our clients achieve debt relief and move forward with their lives. If you’re considering bankruptcy as a solution to medical debt, contact us today for a consultation. Let us assist you in making an informed decision that will set you on the path to financial recovery.