Not all debt can be eliminated through Chapter 7 bankruptcy. Specifically, you can’t discharge income tax, student loans or domestic support obligations, for example.
But where do medical bills stand? Can they be discharged?
In most cases, the answer is yes; your medical debt can be erased through Chapter 7. In fact, filing for bankruptcy is one of the most effective ways to end the financial burden of a past health crisis.
How Is Medical Debt Treated in Chapter 7 Bankruptcy?
When you file for Chapter 7, your debts are divided into categories. Secured loans, such as car loans and home mortgages, are nondischargeable in bankruptcy, unless you return the property to the creditor. Unsecured debts that are considered a priority, like child support, taxes or government debt, will also stay with you.
Medical bills don’t fall in either of those categories. They are considered to be unsecured, nonpriority debts, so they qualify for bankruptcy discharge.
Will Chapter 7 Bankruptcy Eliminate All of Your Medical Bills?
Potentially, all of your medical debt can be discharged through bankruptcy.
Chapter 7 doesn’t put a cap on the amount of medical debt that can be erased. So whether you owe just a few thousand dollars or you have bills totaling well into six figures, bankruptcy can wipe the slate clean.
However, you have to pass a means test to qualify for Chapter 7. In the bankruptcy means test, your average monthly income is compared against your total living expenses to determine the amount of your disposable income.
If your income exceeds the state median and you have money left over after covering your living expenses each month, you will not be eligible for Chapter 7. Instead, you’ll need to consider filing for Chapter 13 bankruptcy. With a Chapter 13 filing, you will be responsible for paying at least a portion of your past-due medical bills, although you’ll do so through a repayment plan.
Can You File Chapter 7 Bankruptcy Only for Medical Debt?
What if you want to file for Chapter 7, but you would rather not include all of your debt? Can bankruptcy discharge only your medical bills, but leave you free to pay back the cash your dear Aunt Harriett loaned you last year?
Unfortunately, bankruptcy doesn’t work that way. You can’t pick and choose which creditors receive payment and which debts are eliminated — all of your creditors must be treated fairly and equally.
So when you file for bankruptcy, you must include all of your debts. The court will not allow you to show any creditor preference, even if that creditor is a close relative. You can’t file for Chapter 7 with the hope of eliminating only your medical bills.
In Utah, Lewis Adams & Associates can help you escape your mounting medical debt. Contact our West Jordan office today to schedule a personal consultation, and learn more about Chapter 7 bankruptcy.