How Bankruptcy Can Help You With Medical Debt

Medical Debt In Today’s World

Medical debt is debt from any medical cost that you can’t pay right away, so anything that you don’t pay when you get the bill is considered medical debt.

19 percent of Americans have medical debt, and that was a statistic from before the Covid crisis, we are seeing now that close to 50 percent of Americans have medical debt, it’s huge.

We want to tell you a story about a woman that we met at Austin Bankruptcy Lawyers pretty recently, about two months ago.

She doesn’t have insurance because she was traveling here from Mexico over the holidays. She was about 6 months pregnant.

She and her husband came to Austin to visit her grandmother and it was a two-week vacation. They were gonna go back to Mexico but she had her baby 3 months early on Christmas Eve.

Here she is in Austin, not at home, hadn’t planned on having the baby for another 3 months, and because the baby was so early, the baby went into NICU and was there for a month.

Because they didn’t have insurance that was accepted here in the United States, they have Mexican insurance, and she’s employed, they could not pay this debt they got a bill for 90,000 Dollars.

Because she was from Mexico, she was concerned that this would affect her status for traveling, this would be the same story for anybody who’s uninsured, even if they were American nationals, so this woman called us and said: Okay, what do I do with this 90,000 Dollars debt that I have?

We had to get kind of creative, we’ll talk about some of the ways that we helped her, bankruptcy was not an option for her, so we’re going to talk about some non-bankruptcy options today but also some bankruptcy options.

Laws Surrounding Medical Debt In The U.S

Medical debt is the same no matter where you are.

If you have medical debt that you got in Oklahoma, Maine, Oregon, or Texas it’s medical debt, it’s not different fundamentally, but how each state treats insurance coverage does have a huge impact on how medical debt is treated.

When we’re voting and we’re looking down the ballot and we see the insurance commissioner, we yawn and we kind of maybe pass that one over, but it’s the insurance commissioner who tells us with their committee and whoever else makes those decisions, they decide what will and won’t be covered in Texas.

For example, the Texas insurance commissioner may decide this is just fictional, this is not specific at all, but it may decide that it’s not going to cover allergy treatment, or it’s not going to cover chiropractic care or holistic medicine, every state has this discussion.

If that is the policy of that state, then individuals are responsible for those costs, if they do have to go get allergy care or chiropractic treatment or holistic medicine, then even if they have insurance they’re responsible for those costs because the state has decided it won’t cover those things.

The Texas-specific factor is Medicaid, Medicaid is state-provided insurance for people who are income.

The Federal Government provides some funds for Medicaid but it’s up to the states to determine how expansive they want that coverage to be, what level of poverty, and what level of income, it takes to qualify.

How each state treats its insurance is going to have a great big factor in how much debt you’re going to have, what’s going to be covered, what your co-pays are going to be, that kind of thing.

Texas has done a pretty good job of protecting people from medical debt collection, Texas you cannot have your wages garnished for this kind of debt, in many states if you do have medical debt then that would go to a collection agency, and that collection agency sues you, then they get a judgment from the court and they use that judgment to garnish your wages or to file a lien against your real estate.

In Texas, we don’t do wage garnishment and you can’t put a lien against real property, in that sense, you’re protected but if you do have some other you may still be burdened by that debt in other ways.

Is It Possible To Discharge Medical Debt Through Bankruptcy?

A lot of people are really surprised to hear that 67 percent of bankruptcies are filed because of medical debt.

Bankruptcy is not a moral failing, it’s just a financial tool, if we had a system that created less medical debt, bankruptcy would be less necessary.

So yes, medical debt is dischargeable in bankruptcy, bankruptcy would be less used if medical debt didn’t exist.

What Chapter Of Bankruptcy Can Help Me To Discharge My Medical Debt?

Medical debt is one of the most easily dischargeable debts in bankruptcy.

Some debts don’t get discharged, like recent tax debt, support obligations through family obligations, debt that’s accrued by fraud, and medical debt are just regular old debt that you didn’t ask for.

Chapter 7 will eliminate your debt, and Chapter 13 will discharge whatever is left over from that debt after your Chapter 13 plan payments are made, so you’ve made your 36 payments or your 60 payments, anything left over gets discharged.

Is Medical Debt Private Or Federal?

There is rarely federal medical debt that would be debt that comes from treatment at the VA, but most treatment at the VA is at low or no charge to the veterans.

Most of the time medical debt is private, it’s from your local hospital, your local dentist, whatever, and it does not make a difference when filing for bankruptcy.

How Will Medical Debt Affect My Credit Reports?

There are some brand new changes happening in the law, this is something that Congress has made happen for us, it used to be that all medical debt, whether it was paid or not paid, still owing, you paid it within two months of getting the bill, it would stay on your credit report for 7 years, and then, if you got sued and you got a judgment that stays on your report for 10 years, that can do a lot of damage.

As of July of this year, they’re going to be these changes, all paid medical debt will be taken off your credit reports, if you had a procedure 6 years ago, and it took you 6 months to pay it, but you did pay it, but it’s still on your report, it brings down your score.

Even paid medical debt will be taken off, even unpaid medical debt will not be there, and medical debt will not be reported to the credit reporting bureaus for one whole year.

As of now, you get 6 months to pay it off before it gets reported.

Medical debt doesn’t get reported for a year, and then, once it’s paid it gets taken off. It’s a great change and it’s going to help a lot of people with their credit reports.

Are My Children At Risk Of Inheriting My Medical Debt If I Pass Away?

It’s unusual but in most cases, you can’t require somebody to use their own money to pay for somebody else’s debt, you didn’t sign the medical release, you didn’t sign the financial responsibility paperwork, so you can’t be forced to pay for that.

Most of the time once you pass away your medical debts are paid by your estate, and if the debts that you have, medical or otherwise, exceed the money left in the estate or the property left in the estate, the estate is considered insolvent.

Then, in that case, the medical providers, the billing companies, they will usually just write that off they’ll let that go.

The only exception is if your children co-signed on the medical debt, it’s rare but it does happen.

If your child is the executor of your estate, and if that child does not follow the rules and does not follow the state laws in administering your estate, they’re on the hook for those debts.

When you write your will you want to make sure that you choose your smartest kid to be your executor?

What Happens If I Pass Away After Filing For Bankruptcy?

This has to do with the timing of your passing. If you had the illness and the medical debt before you filed the bankruptcy, and then, you’re just holding on and your bankruptcy closes, you get your discharge, nothing changes.

There’s less debt to handle in the estate so that’s a good thing, it’s better to handle medical debt before you pass away as much as you can, end-of-life care is very expensive if you pass during your bankruptcy.

Depending on what assets you leave behind, it might be a good idea to have your heirs pursue what’s called a hardship discharge.

A hardship discharge is presented to the court, not just in case of death but in other situations too when there’s something that’s keeping you from being able to fulfill the last requirements of your bankruptcy, whether it’s doing the online course right before you fought into the bankruptcy, or completing your Chapter 13 plan payments.

If you’ve passed away, the hardship is that you’re dead and you can’t complete the final requirements of the bankruptcy.

If you have assets that you were protecting in the bankruptcy, a hardship discharge might be a good idea, and for that reason, if you are filing bankruptcy tell somebody who’s going to be involved in your estate.

The estate, however, is otherwise insolvent, you don’t have a lot of assets, and it might be fine to just let the bankruptcy case close without a discharge.

Make sure that you tell your closest family member, members, or a very good friend that you have filed bankruptcy if you’re in poor health and you think that your demise is imminent because there are some real considerations here.

What Is Charity Care & How Can It Help My Medical Debt?

There’s something wrong with the system when people have to choose between paying for medical treatment or having a roof over their heads.

One of the things that have exacerbated this, not just through the pandemic but before the pandemic, there has been a real rise in gig work, people who are driving for Uber, people who are delivering for Doordash, and there’s no insurance offered with that.

Also, we’ve seen employers reduce people’s hours so that where you were working 40 hours a week, now you’re working 30 hours a week and you’re no longer eligible for employer health insurance, when that happens you can’t afford the marketplace insurance, you end up with more medical debt.

It’s kind of a confluence that we’re seeing now between the pandemic, the rise of gig work, less employer-paid, health insurance, and of course we could talk about the labor movement, that’s kind of experiencing a resurgence right now.

All of that has led to a lot of medical debt, and very often people have to choose between eating and getting medical care, keeping their home or getting life-saving treatment.

If you have gotten medical treatment at a hospital we’re not talking about your local doctor but at your actual hospital, and if you don’t have much other debt, it’s not going to be incredibly worth it to file bankruptcy if you can get something called Charity Care.

We strongly strongly recommend if you can avoid bankruptcy, strongly recommend applying for Charity Care at the hospital, every hospital has this.

They make the process pretty easy, you might have to show a pay stub or a tax return, you’ll contact the business office at the hospital and follow their instructions.

Can You File For Bankruptcy For Medical Debt More Than Once?

You wouldn’t file for this on the same medical debt once you filed and you got your discharge then, that’s gone, you don’t need to file on that again,

No matter the reason for the debt, any kind of debt, you can file bankruptcy more than once, there are rules surrounding it.

You can’t file Chapter 7 more than once in 8 years.

Chapter 13 is 4 years but there are other things that you can do if you accrue new medical debt in that time.

Let’s say you filed Chapter 7, wiped out your medical debt, and a few years go by and you have another medical issue, you have more medical debt, then you can file again.

It’s just how that debt is going to be treated in the bankruptcy, there are some provisions that you need to kind of pay attention to.

Talk to an experienced bankruptcy attorney in Austin to make sure you’re filing the right kind of bankruptcy with the right provisions for your situation.

Could I Get Denied Employment If I File For Bankruptcy?

There are different kinds of background checks that employers use, many of them do show a bankruptcy, however, it’s illegal under federal law to discriminate for employment because someone has filed bankruptcy, same is true for promotions, you can’t be denied a promotion or penalized in any way based on having filed a bankruptcy.

This brings up another issue that we’ve seen from time to time, people ask: if I’m in the military or I’m a military contractor and I have a security clearance. Will my security clearance be in danger if I file bankruptcy? and the answer is usually no, until you’re at a high level of security clearance, then a bankruptcy usually won’t affect it.

We’ve worked with lots and lots of people in the military both in Washington and in Texas and we have yet to see a security clearance denied because somebody filed a bankruptcy.