Medical debt is a significant burden for many Americans. In 2020, U.S. health care spending reached $4.1 trillion, with individuals spending an average of $12,530 on medical care. Nearly one in five households couldn’t afford medical care when needed, according to a 2021 Census Bureau study.
For many, this leads to financial distress and the need for measures like bankruptcy. Filing for bankruptcy can provide relief, offering a way to reduce or eliminate overwhelming medical bills.
Which debts can bankruptcy discharge?
Bankruptcy can address unsecured debts not backed by any asset or collateral. Examples include:
- Credit card debt
- Personal loans
- Medical bills
In bankruptcy, these debts can often be discharged, meaning you are no longer legally required to pay them. This can provide significant relief, allowing you to focus on rebuilding your financial health.
Chapter 7 and Chapter 13 offer different remedies
When considering bankruptcy, there are two main options: Chapter 7 and Chapter 13. Each offers different remedies for excessive medical debt.
- Chapter 7 Bankruptcy:This is known as liquidation bankruptcy. A trustee sells your eligible assets to repay creditors. However, many assets are exempt under Tennessee bankruptcy laws. The process usually takes four to six months, and in most cases, results in a discharge of medical debt even if no money is raised. The downside is that you may have to give up some nonexempt property. Chapter 7 is typically for those who lack sufficient income to repay creditors and must pass a means test to qualify.
- Chapter 13 Bankruptcy:Often called wage earner’s bankruptcy, Chapter 13 allows you to create a repayment plan using disposable income over three to five years. This plan can include repaying medical bills, which might help maintain relationships with health care providers. The main advantage is that you can keep your property, but you must have a stable income to make the required payments.
Choosing the right type of bankruptcy depends on your financial situation. An experienced bankruptcy attorney can help you understand all your debt relief options and find the best route to restoring your financial stability.
