Since medical expenses have been creeping upwards for decades, it is no real surprise that some people are stuck with massive medical debt. What is surprising to many, though, is how widespread the problem has become: medical bills now contribute to roughly 60 percent of America's personal bankruptcy filings.
Most people assume that their health insurance will protect them financially against the crushing debt of medical bills, but that is sometimes not the case. With out-of-pocket expenses like costly prescription medications, co-pays, specialist fees and expenses for out-of-network or emergency treatment, even people with high-quality health insurance can easily find themselves drowning in medical debt.
If you find yourself dealing with unmanageable debt due to medical expenses, there is help available. There are several different valid debt management options, and it is important to have a cursory understanding of how they work to ensure that you are able to make the best choice for your unique financial situation.
Federal law provides an effective way to recover from excessive medical, credit card and personal debt: a bankruptcy filing. While there are several different bankruptcy options, the majority of consumer (i.e., non-business) filings are brought under either Chapter 7 or Chapter 13 of the bankruptcy code.
Chapter 7 is better known as a "liquidation" bankruptcy, and it involves the sale of non-exempt assets to fund payments to creditors. Once those funds are exhausted, remaining eligible debts are forgiven. Not to panic, though: the majority filings do not involve the sale of assets. Furthermore, an experienced bankruptcy attorney will determine whether or not the sale of assets shall occur prior to filing. In the majority of cases, you keep all of your assets, including home furnishings, personal items, work-related tools/equipment, at least one vehicle (sometimes more, depending on your unique needs) and the family home. Chapter 7 is the quickest bankruptcy option, often providing significant debt reduction in just a few months.
Chapter 13 bankruptcy doesn't involve liquidation of assets, but instead uses a consolidation-based approach. Under Chapter 13, eligible debts are combined into one monthly payment in a plan that generally lasts from three to five years. At the end of the repayment period, remaining eligible debts are discharged. Chapter 13 may take longer than Chapter 7, and your household income and or individual situation shall determine whether you are required to file under this Chapter. Past due amounts for homes and vehicles can be rolled right into the repayment plan, and filers don't have to wait until the end of the plan to start rebuilding credit.
Bankruptcy is not the only way in which relief from medical debt is possible. Some people choose to reach out directly to health care providers, choosing to either set up a payment plan with them or negotiate the debt. Oftentimes hospitals, clinics and physicians are willing to negotiate a one-time, lump sum payment that is significantly lower than the actual bill just to ensure that they do receive some money for their services.
Other people take a different approach, choosing to borrow money from friends, take out personal loans or find additional employment to cover the expenses.
Whatever debt management program you are considering - regardless of the type of debt (medical, credit card, etc.) you are dealing with - it is important to carefully weigh all your options with an attorney before making a decision.