In many cases, bankruptcy provides you with a workable solution to your overwhelming medical care bills and allows you to recover and start anew financially.
You’ve spent much of your adult life hearing and reading that personal bankruptcy is a scarring consequence of financial mismanagement and needs to be avoided at all costs.
For many of you, this advice couldn’t be more wrong.
The fact is, personal bankruptcy often can be a solution, one that provides an opportunity to wipe out huge debt – frequently associated these days with runaway medical costs – and get a fresh start. And bankruptcy should be looked at that way.
Medical Debt’s Widespread Impact
First things first: In addition to dismissing this “scarlet-letter” notion about bankruptcy, let’s also clarify why so many Americans get into a financially strapped position. It usually isn’t because of cars, vacations, jewelry and other things that you may not be able to afford.
It’s more likely because of health care. Pure and simple.
“Most cases of bankruptcy aren’t caused by reckless spending but by financial hardship, and many are lower-income individuals who simply can’t afford to deal with unexpected major expenses such as job loss or medical bills,” writes Debt.org.
Secondly, let’s also make it clear: you are not alone. In fact, no matter your age, out-of-control medical debt is the leading cause of bankruptcy filings.
According to a recent poll by the Kaiser Family Foundation, 26 percent of American adults say they or a household member in the past year have encountered difficulties paying medical bills. Moreover, 12 percent of all Americans (about half of this group) say the bills had a major impact on their family.
For senior citizens, meanwhile, the difficulty is even more profound.
The New York Times notes that three connected issues have been dragging down Americans for many years now. The three: “Vanishing pensions, soaring medical expenses, inadequate savings.”
A study by University of Illinois professor Robert Lawless and three colleagues also provides stark details regarding the percentage of Americans declaring bankruptcy between 1991 and 2016:
- A 66 percent increase in persons 55 to 64 years of age
- A 204 percent increase in those 65 to 74
The study also found that six out of 10 persons 65 and older who file bankruptcy do so because they can’t afford to pay their enormous medical bills
Moreover, the National Council on Aging says medical debt poses the most serious hurdle to economic well-being, as more than 84 percent of Americans over 65 years of age are dealing with at least one chronic condition. Adds a study in the Journal of General Internal Medicine: out-of-pocket medical expenditures in the five years prior to an individual’s death totaled more than $38,000, leaving one in four seniors approaching bankruptcy.
Filing Choices Available to You
Fortunately, bankruptcy law offers two clear solutions, both of which enable you to resolve your out-of-control medical bills.
Chapter 13
Chapter 13: Typically, Chapter 13 allows you to keep your assets as you repay some fraction of your debt over five years. At the end of the case, you discharge any leftover debt. Additionally, in a Chapter 13 filing, you usually can discharge medical bills without paying anything to the provider (and your creditors can take no action against you).
Chapter 7
Chapter 7: This approach enables you to discharge all of your medical debt (as well as other unsecured debt), in the next half year after filing. It’s also the easiest way to completely eliminate your hospital bills. Chapter 7 is a complete fresh start.
Retirement accounts — 401 (k), 403(b), profit-sharing accounts, etc. — usually are exempt in bankruptcy as federal bankruptcy law prevents them from being liquidated during bankruptcy proceedings.
The “keep-your-assets” provision of Chapter 13 means you can save your home from foreclosure. You also can reschedule secured debts (other than a mortgage for your primary residence) and extending them over the life of your filing, likely reducing your payments. Chapter 13 also allows you to make plan payments to a trustee who then distributes payments to creditors, eliminating direct contact with creditors while under Chapter 13 protection.
Chapter 7 bankruptcy requires a “means test” to determine if your monthly income doesn’t surpass certain guidelines. Fortunately for seniors, the means test excludes Social Security benefits.
Here at Woodall & Woodall, we will discuss all of these options with you so you can make an informed choice.
Addressing the Impact on Your Credit Rating
Even though filing has an immediate detrimental impact (more than 200 points) on your credit rating, Chapters 7 and 13 provide real solutions for most Americans. In fact, we have a program to help you get a fresh start.
Other steps you can take to boost your rating include:
- Clean up your credit reports. The last thing you want post-filing is a credit report with errors on it. Advice: Take the time to review your reports and notify agencies about every single error. You can even add a notation online explaining the circumstances (ie, medical costs) that caused you to file.
- Obtain a secured credit card. You can get one of these without a credit check, but a deposit – equal to the line of credit – is required. This doesn’t require a credit check. Experts says timely monthly payments over the course of a year or so can have a beneficial impact on your score.
- Embrace technology. Make sure you pay your monthly bills on time. A good way to do this is to sign up for automated payments so you don’t risk missing a payment date.
Going Forward
In many cases, bankruptcy provides you with a workable solution to your overwhelming medical care bills and allows you to recover and start anew financially.
If medical costs have overburdened you with overwhelming debt and you are uncertain where to turn, contact Woodall & Woodall at 229-207-0979 or fill out our simple contact form. We have helped more than 22,0000 in South Georgia regain a solid financial footing either through debt consolidation or by filing bankruptcy.
Will Woodall is managing partner at Woodall & Woodall and has been practicing bankruptcy law in South Georgia since 2003. In 2018, he was selected as one of the top 20 bankruptcy attorneys by Georgia Trend Magazine.
