Can You Discharge Medical Debt in Bankruptcy?

When you have medical debts, that can put you into some serious financial trouble. When those bills start piling up, bankruptcy might be an option when you can’t find a way to pay off these debts. But can medical debt be discharged during a bankruptcy in Maryland?

Unfortunately, medical debt can burden you financially, but there are options to help alleviate some of those struggles. At Belsky & Horowitz, LLC, we understand that any type of debt can lead to stressful situations for you and your family.

Let’s discover whether you can find a way to help remove the burden of medical debt.

How Is Medical Debt Classified?

Medical debt is considered unsecured debt. That means it is not backed by any type of collateral, such as a car or house. Personal loans and credit cards are other forms of this type of debt. There is good news: since it is unsecured, you can discharge it through Chapter 7 or Chapter 13 bankruptcy.

Each filing will have a different way of handling the medical debt.

Chapter 7 Bankruptcy

Most people will choose a Chapter 7 filing to handle their medical bills. With this liquidation bankruptcy, individuals are allowed to discharge most unsecured debts. During this time, a bankruptcy trustee is appointed to oversee the process. If you have any non-exempt assets, they will be sold to pay creditors. However, many people have few or no assets.

If you want to file for this type of bankruptcy, you must pass a means test. Your income is assessed against the median income in Maryland. If your income is below the state median, you are eligible for Chapter 7.

Currently, the median income is based  on household size:

• One-person household: $81,000
• Two-person household: $104,569
• Three-person household: $127,386
• Four-person household: $151,138

If your income exceeds the median, you may still qualify. However, you might need a more thorough assessment of your finances. Since medical debts are considered “nonpriority unsecured debt,” they will be discharged with similar debts. You can expect this process to take anywhere from four to six months.

Chapter 13 Bankruptcy

If you don’t qualify for Chapter 7 or want to avoid selling certain assets, then Chapter 13 could be another option. This process is known as reorganization bankruptcy, and you will need to create a repayment plan over three to five years. Unlike Chapter 7, which discharges debts, you will still be responsible for paying off your medical bills. At the end of the repayment period, if you still have any remaining medical debt that was not repaid through the plan, it can be discharged.

How to File Bankruptcy in Maryland

If you are considering filing for bankruptcy to address medical debt in Maryland, there are a few steps that you will want to follow. First, you will need to hire a bankruptcy lawyer. This type of law is complicated, and you want to make sure you choose the best course of action for your finances. With help from an attorney, they can determine whether you will want to file Chapter 7 or 13 to manage that medical debt.

Along with that, you will need to complete a credit counseling course. This must happen before you file for bankruptcy. Under federal bankruptcy laws, you must take this mandatory step before proceeding through the process. With that, you will learn about the implications of filing to discharge your debts.

After that is completed, you can file the bankruptcy petition. This automatic stay goes into effect immediately. That means it will stop creditors from attempting to collect on your medical debt.

However, the process is not completed. You will still need to meet with your creditors. This happens about a month after filing, and it takes place between the bankruptcy trustee and your creditors. This is a review process; you might be expected to answer questions about your finances. During this time, all your debt will be reviewed to confirm the accuracy of the debts and establish the facts of the bankruptcy.

If you have elected for Chapter 7 bankruptcy, you will receive a discharge of your medical debt within a few months. For those proceeding through Chapter 13, your discharge will be finalized after completing the repayment plan, which could take several years.

In Maryland, medical debt can be discharged through bankruptcy. With that, you can find some relief when you have been overwhelmed by healthcare costs. Whether you file for Chapter 7 or Chapter 13 bankruptcy, both options offer a path to eliminate or reduce medical debt.

If you want to learn how to get a fresh start, we offer free consultations at Belsky & Horowitz, LLC.