Medical debt is one of the leading causes of financial distress in the United States. Unexpected illnesses, accidents, or chronic conditions can lead to overwhelming medical expenses that burden individuals and families. If you’re facing insurmountable medical bills, you might wonder, Can you file bankruptcy for medical bills? The answer is yes, and bankruptcy can provide significant relief for those drowning in debt due to medical expenses.
This article will explain how bankruptcy can address medical debt, the process of filing bankruptcy in SC (South Carolina), and other critical considerations.
Understanding Medical Debt and Bankruptcy
Medical debt is considered unsecured debt, similar to credit card debt or personal loans. Unlike secured debts—which are tied to collateral like a home or car—unsecured debts are not backed by assets. This distinction is important because unsecured debts, including medical bills, can often be discharged in bankruptcy.
Bankruptcy is a legal process that helps individuals or businesses eliminate or restructure their debts. It’s a financial tool designed to provide a fresh start for those overwhelmed by financial obligations. Two common types of bankruptcy for individuals are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows you to discharge most unsecured debts, including medical bills. When you file for Chapter 7, a court-appointed trustee evaluates your assets and sells non-exempt items to pay creditors. However, many people who file Chapter 7 have few or no non-exempt assets, meaning they can keep most or all of their property.
This form of bankruptcy is ideal for individuals with limited income and significant unsecured debt. The process typically takes three to six months, and once completed, you are no longer legally obligated to pay the discharged debts.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often referred to as a reorganization bankruptcy, involves creating a repayment plan to pay off debts over three to five years. Unlike Chapter 7, this option allows you to retain your assets while making manageable payments based on your income and expenses.
Medical bills are included in the repayment plan and may be partially or fully discharged at the end of the repayment period, depending on your circumstances. Chapter 13 is suitable for individuals with a steady income who want to avoid liquidation of assets.
Filing Bankruptcy in SC for Medical Bills
If you live in South Carolina and are considering filing bankruptcy for medical bills, here are the steps and requirements to follow:
1. Assess Your Financial Situation
Before deciding to file bankruptcy, evaluate your financial situation. List all your debts, including medical bills, credit card balances, personal loans, and any other obligations. Determine your income, assets, and monthly expenses to see if bankruptcy is the best option.
2. Seek Credit Counseling
In South Carolina, as in other states, you are required to complete credit counseling from an approved agency within 180 days before filing for bankruptcy. The counseling session helps you explore alternatives to bankruptcy and determine if it’s the right solution for your financial problems.
3. Choose the Right Type of Bankruptcy
Consult with a bankruptcy attorney to determine whether Chapter 7 or Chapter 13 is better suited for your situation. Factors like your income, assets, and the total amount of medical debt will influence this decision.
4. File the Bankruptcy Petition
Your attorney will help you prepare and file the necessary paperwork with the bankruptcy court. The petition includes details about your income, expenses, debts, assets, and financial history. Once the petition is filed, an automatic stay goes into effect, preventing creditors from pursuing collection actions, including phone calls and lawsuits.
5. Attend the Meeting of Creditors
After filing, you’ll attend a meeting of creditors (also called a 341 meeting). During this meeting, the bankruptcy trustee and creditors may ask questions about your financial situation. This is a routine part of the process and typically lasts less than an hour.
6. Complete Financial Management Education
Before your debts can be discharged, you must complete a financial management course from an approved provider. This step is designed to help you manage your finances effectively in the future.
7. Receive the Discharge
In Chapter 7 bankruptcy, you’ll receive a discharge order within a few months of filing, eliminating your obligation to pay most unsecured debts. In Chapter 13, the discharge comes after completing the repayment plan.
Pros and Cons of Filing Bankruptcy for Medical Bills
Pros
- Debt Relief: Bankruptcy can discharge medical bills, providing a fresh start.
- Immediate Protection: The automatic stay halts collection efforts, wage garnishments, and lawsuits.
- No Repayment in Chapter 7: For eligible individuals, Chapter 7 eliminates medical debt without requiring repayment.
- Affordable Payment Plans in Chapter 13: Chapter 13 allows for manageable payments over time.
Cons
Impact on Credit: Bankruptcy significantly affects your credit score and remains on your credit report for 7-10 years.
- Cost of Filing: Filing fees and attorney costs can be a financial burden.
- Loss of Non-Exempt Assets: In Chapter 7, some assets may be sold to pay creditors.
- Not All Debts Discharged: Bankruptcy does not eliminate all types of debt, such as student loans or recent tax obligations.
Alternatives to Bankruptcy for Medical Debt
Before filing bankruptcy, consider other options for managing medical debt:
- Negotiate with Providers: Many healthcare providers are willing to negotiate payment plans or reduce bills.
- Seek Financial Assistance: Charitable organizations or hospital assistance programs may help cover medical expenses.
- Debt Consolidation: Consolidating debts into a single loan can simplify payments and lower interest rates.
- Credit Counseling: A credit counselor can help you create a budget and negotiate with creditors.
Final Thoughts
Medical debt can be overwhelming, but you don’t have to face it alone. Filing bankruptcy in SC can provide relief and a path to financial stability. Whether you choose Chapter 7 or Chapter 13, bankruptcy offers a way to eliminate or reduce medical bills and other unsecured debts.