Chapter 7 Bankruptcy and Medical Debt

Chapter 7 Bankruptcy and Medical Debt

Considering the rampant spread of diseases across the world, having health insurance is mandatory. However, despite the assurance of insurance, people still end up accumulating a huge amount of medical debt. Getting rid of the unsurmountable medical debt is a reason why many people file for bankruptcy. However, the fate of any debt during bankruptcy depends on which kind of debt it is, say lawyers of Los Angeles based bankruptcy law firm Recovery Law Group.

Debts are classified broadly into four categories:

  • Secured debts

If the creditor has a lien on your property, such as home or car, and can foreclose or repossess the said property in case of non-payment of dues, then, the debt is known as, secured debts. In this case, the property acts as collateral. Examples include car loan and mortgages.

  • Unsecured debts

Any debt which is not secured, by a property is termed as unsecured debt.

  • Priority debts

Priority debts are non-dischargeable, i.e. they are not wiped off during bankruptcy. These include domestic support (child support or alimony) and certain taxes owed to the government. Priority debts are also unsecured but cannot be discharged during bankruptcy.

  • Nonpriority unsecured debts

These debts are generally the last to be paid in a Chapter 7 bankruptcy. Most of these debts, apart from a student loan, are discharged without repayment in bankruptcy. Example of such debts is credit card, medical debts, and unsecured personal loan.

What happens to medical debt in Chapter 7 bankruptcy?

Medical debts are nonpriority unsecured debts and treated accordingly. In the case of Chapter 7 bankruptcy Dallas, your bankruptcy trustee uses your non-exempt property to pay off your creditors. The payment is made first towards your secured debts, then your priority debts and finally towards nonpriority, unsecured debts. Any remaining unsecured debts are discharged in Chapter 7 bankruptcy. It is thus, the best option to get rid of a large amount of unsecured nonpriority debts. However, qualifying for Chapter 7 bankruptcy is difficult. You need to pass the disposable income means test, i.e. your income must be less than the average income of a household of similar strength in your state. This chapter of bankruptcy is not ideal for debtors who have a significant amount of non-exempt property as that will be sold off to repay your loans. It is therefore important to contact bankruptcy lawyers at 888-297-6023 to know whether Chapter 7 bankruptcy is ideal to get rid of medical debts in your case.