More than 65% of all bankruptcies in the U.S. are due to individuals being overwhelmed by medical expenses, according to a study published by the American Journal of Public Health in 2019. An estimated 530,000 families facing medical bills they can’t pay turn to bankruptcy each year in part because medical debt is dischargeable under the U.S. Bankruptcy Code for Chapter 7 personal bankruptcy.
If you live in New York City area or the Hudson Valley and are dealing with medical debt you cannot pay, personal bankruptcy may be an option for you. Michael H. Schwartz, P.C., can help you, just as our bankruptcy law firm has helped thousands of individuals and businesses make a fresh financial start.
Your medical debt can be discharged in a Chapter 7 bankruptcy and possibly reduced under Chapter 13, another approach to personal or consumer bankruptcy that restructures your debt. Bankruptcy addresses all of your debts. Bankruptcy attorney Michael H. Schwartz can work with you to determine the approach that best protects your assets and your future. Contact us today to get started with a free consultation.
How Does Bankruptcy Eliminate Medical Debt?
The money you owe your creditors is either “secured” or “unsecured” debt under bankruptcy law. Secured debt is backed by collateral that the creditor can seize for nonpayment of the loan. Unsecured debt is not secured by the borrower’s assets. Examples of unsecured debt include money owed on credit cards, for personal loans and medical expenses.
The federal Bankruptcy Code also defines a category of “priority” debt that includes child support, alimony, and tax payments.
Bankruptcy law recognizes that if an individual is to emerge from personal bankruptcy, then some debt will have to be forgiven. Therefore, the law prioritizes the debt and allows the lowest priority, unsecured debt, to be discharged.
In a Chapter 7 bankruptcy, which is also known as a straight bankruptcy discharge, unsecured debt is fully discharged. Under a Chapter 13 bankruptcy, which requires a plan to prioritize and repay most debt, the court can grant discharge of low-priority debt, such as medical bills, under certain conditions such as successfully completing a repayment plan for the other debts.
What’s the Difference Between Chapter 7 and Chapter 13 Consumer Bankruptcy?
As your bankruptcy attorney, Michael H. Schwartz will thoroughly examine your financial situation and help you determine which type of bankruptcy best suits your needs.
Chapter 13 is known as the “wage earner’s bankruptcy,” because it is based on the debtor having a steady income and being able to pay some of what is owed to creditors. The person filing a Chapel 13 bankruptcy must submit a plan to pay his or her debts over three to five years. The plan is submitted to the Bankruptcy Court judge for approval. Such a plan will prioritize debt to be paid and may ask for some debt to be reduced or discharged. However, creditors may challenge the plan. It’s helpful to have a knowledgeable N.Y. bankruptcy attorney guiding you through the process.
A straight bankruptcy discharge involves the sale of the debtor’s assets, except for certain protected property, such as a car, home, clothing, furniture, and business tools. The proceeds are distributed to priority debt creditors.
Chapter 7 bankruptcy requires a means test, which considers whether your income is above or below the median income in your state given your household size and whether you should be compelled to pay some of your debts. If your income is low enough, you will be approved for Chapter 7. If you earn enough, you will need to develop a Chapter 13 bankruptcy plan for repaying your creditors.
Will Filing for Bankruptcy Hurt My Credit?
Unfortunately, there is no way to avoid the fact that filing for bankruptcy hurts your credit rating. Depending on whether you file for bankruptcy under Chapter 13 or 7, your FICO credit score will fall by anywhere from 160 to 220 points. This could reduce a “good” FICO score to “fair” or a fair score to “poor.”
FICO scores estimate the level of risk a creditor undertakes by extending you a line of credit or loaning you money. You may be able to get credit or a loan with a fair score, but your interest rate will typically be higher. A poor credit score makes it difficult to get a loan at reasonable interest rates.
It takes less than a year to complete Chapter 7 bankruptcy and three to five years to complete a Chapter 13 reorganization. But a bankruptcy remains on your publicly available credit records for far longer:
- A Chapter 7 bankruptcy will appear on your credit reports for up to 10 years.
- A Chapter 13 bankruptcy will appear on your credit reports for up to seven years.
Fortunately, there are proven steps you can take to rebuild your credit after you have declared bankruptcy. By establishing new lines of credit, paying your bills on time and taking a few additional steps, you can restore your creditworthiness and overall financial health.
You may be concerned about how declaring bankruptcy and getting rid of your medical debt may affect your healthcare services. No hospital in New York or elsewhere in the U.S. can legally deny a person necessary medical care because of his or her inability to pay medical bills in the past, present or future. However, a private medical practice, such as your primary care physician, has more leeway about choosing patients.
If you have not contacted your doctor’s or your hospital’s billing offices about your financial situation, you should do so. They will likely want to work with you about paying a portion of your debt or all of it over time. You may be able to agree to such a plan, which will allow you to maintain your current relationship with your medical care providers.
Get NY Legal Help for Bankruptcy Relief Today
If your medical bills have become an insurmountable burden, filing for bankruptcy in New York may be the best thing you can do to protect the future of your financial well-being. Michael H. Schwartz, P.C. is a highly regarded consumer bankruptcy attorney with nearly 40 years of experience helping individuals in New York City and the Hudson Valley get relief from unmanageable debt and get a new start.
Don’t wait for the financial stress to get worse. Contact our White Plains bankruptcy law firm today for a free initial consultation about your financial situation and the legal options available to you.
Michael H. Schwartz is the largest filer of bankruptcy cases for people living in Westchester and Rockland counties in New York. A graduate of New York Law School, Michael has been licensed to practice in New York State courts since 1983. He is also licensed to practice in the U.S. Bankruptcy and District Courts for the Southern, Eastern and Northern Districts of New York and the District of New Jersey as well as the Second Circuit U.S. Court of Appeals. He is a graduate of Max Gardner’s Bankruptcy and Veterans’ Boot Camps. Several media outlets have reported on his cases or sought his insights, including The New York Times.