My Road Back From Bankruptcy

Posted on: 5 May 2015

A common misconception is that poor spending habits and maxed out credit card bills are the biggest cause of bankruptcy in the U.S. Unfortunately, the truth is much more sobering. Studies have shown that medical bills are actually the most common cause of bankruptcy in the U.S. with over 2 million Americans affected in 2013 alone. The cost for medical care in the U.S. is notorious for being expensive, and at times unaffordable, with an ambulance ride of only 200 feet costing as much as $3,421. If you're having troubles paying your medical bills, you may be able to enjoy some financial freedom by filing for bankruptcy under chapter 7 or 13.

Surrendering All Assets Under Chapter 7

To be eligible for filing for bankruptcy under chapter 7, you must pass the means test, which measures your income in comparison to the mean income for the same household size within your city. The means test is designed to ensure that high-income earners cannot take advantage of the bankruptcy act by filing under chapter 7.

Once you have been approved for chapter 7 bankruptcy, you must surrender all of your assets to a bankruptcy trustee although there are some exceptions, as you can keep some assets to keep you afloat. Your bankruptcy trustee will negotiate a settlement with your creditors and will liquefy all of your assets to pay them back. Once this is done, you are officially free of all debts. Although some debts, such as alimony payment and student loans cannot be wiped away with bankruptcy, medical bills can, as they are treated as non-priority unsecured debts. 

Your personal bankruptcy attorney can help you negotiate a reasonable settlement, and make sure that all of your remaining debts are wiped off of your balance. Most attorneys and trustees will generally see if you are eligible for filing for bankruptcy under chapter 7 before they consider chapter 13, as this is the simplest and easiest option available. If you have questions, set up a time to meet with a personal bankruptcy attorney.

Managing Repayment Plans Under Chapter 13

If your income is much higher than the mean income of the same size household in your city, then you may not be eligible for filing for bankruptcy under chapter 7, and may have to opt for chapter 13. Unlike chapter 7, you do not have to surrender all of your assets when you are approved for chapter 13. Instead, you are required to design a repayment plan with an attorney or a trustee that must be paid off within 3 to 5 years. In this situation, your attorney or trustee will need to speak with all of your creditors in order to negotiate a repayment plan. 

This means that a repayment plan will be negotiated for your medical bills as well. Instead of paying the full amount, you may only be required to pay a portion of your medical bills. In addition, you may not need to pay any compounding interest during this time as well. To be eligible for chapter 13 bankruptcy, your unsecured bills must be less than $360,475; however, some exceptions can be made for large medical bills. Your attorney or trustee will need to make a case with the judge appointed to handle your bankruptcy filing. 

Conclusion

With medical care becoming more and more expensive in America, it is no wonder that more and more Americans are finding it hard to afford standard care. A simple trip to the emergency room or to a doctor can cost a fortune. To prevent having to declare bankruptcy as a result of your medical bills, make sure that you are properly covered with an adequate health insurance plan.