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Medical Debt After a Chapter 7 & Job Loss

I was granted Chapter 7 in the spring of 2005 and was diagnosed with a heart abnormality. What are my options?

I was granted chapter 7 in the spring of 2005 and was diagnosed with a heart abnormality after losing my job in September of 2005. As a result, a large portion of my treatment took place without me having insurance. Since i have had numerous emergency room visits, doctor's appointments (cardiologists, endocrinologists, pulmonologists), hospital stays and not to mention the costs of my medications. My salary is only around 800 a month and the bills are already out of control and continue to mount. I hope someday to return and finish my last few credits of college, but I can’t even afford to pay my bills nor take care of myself with my salary and thousands in unpaid medical bills. What are my options and what should I do?

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Because of the high cost of medical care in the United States and the number of people living without health insurance, the situation you describe is, unfortunately, quite common. Many Americans find themselves facing a medical emergency and are forced to seek treatment despite their lack of coverage, leaving them buried in tens, and even hundreds of thousands of dollars in medical bills which they have no way to repay. For many people in this situation, filing bankruptcy is often the only option available to them to rid themselves of this overwhelming debt. However, since you filed Chapter 7 bankruptcy just over two years ago, Chapter 7 is likely not an option for you, though you should discuss the situation with your attorney before totally giving up on the idea. Thankfully, there are several possible options available that may be able to assist you in resolving your outstanding debts.

First, I encourage you to speak with your bankruptcy attorney about the options available to you to help you resolve your medical bills. Because of your hardship, the bankruptcy court may be willing to dismiss your old bankruptcy case so that you can file a new bankruptcy petition including these newer debts. The court may be reluctant to do dismiss your case because of the amount of time that has passed since you filed your first petition, but it will certainly do no harm to discuss this option with your attorney. Even if you cannot figure out a way to include these debts in your Chapter 7, a Chapter 13 bankruptcy may be able to help you repay these debts, so you will also need to talk to your attorney about the benefits of Chapter 13 to your situation. A Chapter 13 bankruptcy, also called a “wage-earner’s bankruptcy,” allows you to propose a plan to repay creditors over time – usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged.

Since you are only earning $800 per month, your monthly Chapter 13 payments would likely be significantly less than what your creditors are currently asking you to pay. Under the bankruptcy reform laws that went into effect in 2005, you may be precluded from filing Chapter 13 due to your recent Chapter 7 discharge. Generally speaking, you cannot obtain relief in a Chapter 13 if you received a discharge in a Chapter 7 filed less than four years ago, though there may be exceptions to this rule based on your financial hardship. Again, you need to discuss your situation with your attorney to determine whether or not bankruptcy will help resolve your medical debts. If you would like to read more about bankruptcy, I encourage you to visit the Bills.com bankruptcy information page.

If you find that bankruptcy is not a viable option for you, you may want to consider employing a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.

You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though – they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of your overwhelming medical debts. To read more about CCCS and Debt Settlement, I encourage you to visit the Bills.com Debt Help page.

Finally, you may want to consider taking no action in regard to these debts for the time being, at least until your income increases allowing you to make monthly payments on these debts. The creditors may sue you to obtain a judgment and try to collect through wage garnishment and/or bank levy. However, given your income, you may be exempt from garnishment, and you should be able to prevent a bank levy simply by keeping your money out of the bank in the event of a judgment. Again, you need to discuss this option with your attorney, as laws regarding the enforcement of judgments vary by state.

To learn more about debt collection laws in your state, see the Bills.com resources Collection Laws & Exemptions by State and Judgment Garnishment.

Keep in mind that, generally speaking, none of these actions can be taken until a creditor files suit against you and obtains a judgment, so this should not be an immediate concern.

I am not in a position to judge whether or not bankruptcy is appropriate, or even possible, in your situation. Consult with an attorney to discuss the best option available to you. If you find that bankruptcy is not an option, hopefully one of the other options I mentioned will help you resolve your financial difficulties.

I hope this information helps you Find. Learn. Save!

Best,

Bill

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4 Comments

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  • BA
    May, 2010
    Bill
    Find the money to hire a lawyer. Your relative did not get open-heart surgery from an amateur, and he should not get legal advice from an amateur either. Nolo Press has an excellent series of books on the law, but even the best book does not replace someone who will ask probing questions, will complete the forms correctly, and will know the intricacies of local court procedures.
    0 Votes

  • 35x35
    May, 2010
    Michelle
    My Father in-law just had emergency open heart surgery and was told that he could no longer work, without an income he cannot pay his credit cards, house payment, medical bills, car payment, and utilities. I know he can get disability, but that still will not be enough. He is considering filing for Chapter 7, but does not have money for the lawyer. Do you have any advice?
    0 Votes

  • BA
    Mar, 2009
    Bill
    You should talk to your mortgage company about a loan modification. But if you do not have an income, it will be difficult.
    0 Votes

  • RT
    Mar, 2009
    Rose
    I'm divorce and filed for chapter 13 a year ago and I just recently loss my job. What can I do to keep my home.
    0 Votes

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