Despite modern advances in medical care and constant debate in Congress regarding health insurance coverage, many Americans still end up filing for Chapter 7 or Chapter 13 bankruptcy due to medical debts. According to CNBC, recent studies of medical debtors from before and after the Affordable Care Act (ACA) went into effect showed that there was actually an increase in medical debts declared as reasons for bankruptcy over the time period. Michigan residents should be aware that though the ACA can increase health insurance coverage, they may not be able to escape potential medical debts.
The United States Courts state that declaring Chapter 7 and Chapter 13 bankruptcy can help to erase or minimize medical debts, but it is important that debtors understand the difference between the two types of bankruptcy. Chapter 7 bankruptcy can involve the following:
- Passing an income test for eligibility
- Counseling sessions with a bankruptcy agency
- Filing a petition and paying court fees
- Meeting with creditors
- Taking financial management classes
Chapter 7 bankruptcy can help to remove medical debts, but it can also lead to the loss of credit score points, property seizure and removal of assets.
On the other hand, Chapter 13 bankruptcy can be an attractive solution to high medical debts. This style of bankruptcy requires the development of a repayment plan based on an evaluation of personal assets and the means to pay debts back over time. Chapter 13 filers do not have to lose property, unlike those who file for Chapter 7. However, court fees may be higher for Chapter 13 filers. Each debtor should evaluate whether debt erasure with loss of assets or a repayment plan over a long period of time is better for their personal situation.