Medical debts are among the leading causes of financial hardship in Michigan. When individuals struggle with overwhelming medical bills, they may feel like they have no other option but to file for bankruptcy. Before making this decision, it’s essential to understand how bankruptcy treats medical debt and what your bankruptcy options are.
Medical Debt as Unsecured Debt
The first piece of good news is that medical debt is classified as unsecured debt in bankruptcy cases, meaning creditors cannot take other assets as collateral. Examples of secured debts are mortgages or car loans, for which creditors may be able to seize your property as collateral during bankruptcy proceedings.
Unsecured debt is also usually a lower priority for repayment than secured debt, meaning you may only end up paying a portion of your medical bills, if any, after filing for bankruptcy.
Bankruptcy Options for Medical Debt
Those with medical debt in Michigan have two primary bankruptcy options: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
To qualify for Chapter 7 bankruptcy, you must pass a means test comparing your income to the state median income. If yours is lower than the median, you will likely be eligible for this type of bankruptcy.
Chapter 7 is often referred to as liquidation bankruptcy because it involves liquidating (selling) your non-exempt assets to repay your debts over the course of three to six months. Medical debt is fully dischargeable, meaning you will no longer be legally obligated to pay it once your bankruptcy is complete, regardless of how much you owe.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy may be a good option for those with a stable income. Unlike Chapter 7, Chapter 13 is a “reorganization bankruptcy,” which involves reorganizing your assets and creating a payment plan to repay creditors over three to five years.
The amount you will need to pay depends on your income, expenses, and overall debt. However, your remaining medical debt will be discharged at the end of your repayment period. This frequently results in debtors only paying for a fraction of their medical debt.
Impact of Bankruptcy on Medical Debt
The immediate impact of filing for bankruptcy is that the court will put an automatic stay in place. Automatic stays prevent medical providers and collection agencies from contacting you in search of payments for medical debt. They also pause all wage garnishments and lawsuits related to the medical debt. This can give you time to reorganize your finances without creditors harassing you.
Unfortunately, if a spouse or family member co-signed on your medical debt, they may still be responsible for it unless they also file for bankruptcy.
Contact Our Michigan Bankruptcy Lawyers
If you have substantial medical debt and are considering filing for bankruptcy in Michigan to clear it, contact Marrs & Terry to speak with an experienced bankruptcy lawyer about your case. During your initial consultation, we’ll review your debts, go over your eligibility for the different types of bankruptcy, and answer your questions about the bankruptcy process.