Bankruptcy and Medical Bills

I often get calls from potential clients asking whether they can file for bankruptcy just on their medical bills, and not include their credit cards or other debts. The short answer is that they can file, but not just on their medical bills. The slight longer answer explains why.

Bankruptcy is all about treating all your creditors in various classes fairly. For example, the Court doesn’t want to see you pay Aunt Marge the $1,000 she lent you last year and not pay MBNA for the $1,000 you owe them. While you think Aunt Marge deserves the money more than MBNA (actually, I do too), it isn’t fair to let you pick and choose who receives payment, or give them what the Code calls a “preference.”

Since medical bills, credit cards, most personal loans, and some taxes are all considered “general unsecured debts,” they all have to be treated the same way. This means that all of your debt, not just medical bills, has to be included. It also means that you can’t just file on one or two credit cards, or on one judgment.

Clients frequently tell me, “I don’t want to include x, x, and x in my bankruptcy.” It might be a house or a car or a family debt (see Aunt Marge above). I explain that is not the way it works. Everybody who is owed money is listed, and all dischargeable debts are no longer their personal obligation. The most common non-dischargeable debts include some taxes, child support and student loans. But the discharge is a door that only opens in one direction. The creditor is prohibited from collecting, but you can pay anyone you want AFTER the bankruptcy is filed, not before. For secured debts the rule is simple: if you want to keep the collateral (house or car, for example) you must pay for it. Payment can be by reaffirmation (continuing monthly payments) or redemption (payment in cash of the value of the collateral).

While we’re on the subject of the relationship between medical bills and bankruptcy, consider these facts:

• 42% of all personal bankruptcies are the result of medical expenses. 78% of those who filed had insurance.
• 56 million Americans under age 65 will have trouble paying medical bills;
• Over 35M American adults (ages 19-64) will be contacted by collections agencies for unpaid medical bills;
• Nearly 17M American adults (ages 19-64) will receive a lower credit rating on account of their high medical bills;
• Over 15M American adults (ages 19-64) will use up all their savings to pay medical bills;
• Over 11M American adults (ages 19-64) will take on credit card debt to pay off their hospital bills;
• Approximately 10M American adults (ages 19-64) will be unable to pay for basic necessities like rent, food, and heat due to their medical bills;
• Over 16M children live in households struggling with medical bills;

If you or someone you know is struggling with medical or other debt call us to schedule a free bankruptcy consultation. At McFerran & Burns, we are experienced in all types of debt and the various ways to approach medical or other debt.

Today's blog courtesy of Richard J. Welt, McFerran & Burns.

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