You’ve probably heard someone use the term “medical bankruptcy.” This is a word commonly used by people who are going through a health-related financial crisis or who know someone facing serious medical debt. Although medical bankruptcy is not a legal term, it is a useful term to describe a financial remedy for a person who may have reached the end of his rope due to medical debt.
Medical bankruptcy can be a misleading term because there is no legal recourse available exclusively for medical debt. In general, bankruptcy is the dissolution or reorganization of part or all of an individual’s debt. When you file for bankruptcy, you must include all of your debts. This would apply to home loans, car loans, credit cards, and medical debt. There are several types of bankruptcies, but most people who file for medical debt bankruptcy will typically file for Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy can allow a person to eliminate their debt, while A Chapter 13 bankruptcy can allow a person to reorganize their debt into a 3-5 year plan, while at the same time reducing the principle of their debt.
The idea that medical bankruptcy exists as a legal remedy may have developed because the court handles medical debt differently than it would other types of debt. Not all debts will receive the same treatment in court. A bankruptcy court will generally divide a person’s debt into two classes: secured debt or unsecured debt. Secured debt is the type of debt that is generally tied to assets such as a car loan or home mortgage. Unsecured debt is generally not tied to assets, but can often be eliminated or greatly reduced through bankruptcy. It is important to realize that medical debt is generally classified as unsecured debt.
While the term “medical bankruptcy” is not a legal term, it is a helpful way for a person to describe how their finances fell into disarray. An experienced bankruptcy attorney will immediately understand what a client needs when inquiring about medical bankruptcy. A bankruptcy attorney can inform them how bankruptcy could be a solution to their financial difficulties caused by medical debt, and even help the person decide whether Chapter 7 or Chapter 13 is more appropriate for their situation. Once a person has decided on the best course of action, the attorney will smoothly guide them through the legal process of filing and obtaining bankruptcy.
Dye