North Carolina Medical Debt Bankruptcy
It is often repeated that a major medical problem can wipe out a family’s savings and create overwhelming medical debt. Depending on your particular circumstances, personal bankruptcy may be a viable option for dealing with unmanageable medical debt and making a fresh start. While there is no such thing as a medical bankruptcy under the U.S. Bankruptcy Code, personal bankruptcy under Chapter 7 and Chapter 13 of the Code can help you seek relief from debt caused by medical bills. Medical debt can be forgiven in Chapter 7 bankruptcy and possibly reduced or restructured in a Chapter 13 bankruptcy.
If you are overwhelmed by the amount of money you owe hospitals and other health care providers, contact a board-certified bankruptcy attorney at Sasser Law Firm today to discuss your options. We will review your debts and income and tell you if we think bankruptcy would be appropriate for dealing with your financial situation. Sasser Law Firm has been focused on helping individuals and families in North Carolina obtain financial relief from unmanageable debt for more than 20 years. During that time, we have handled more than 8,500 cases of personal and business bankruptcy.
Contact us today to learn about your options for obtaining relief from overwhelming medical debt. Our bankruptcy attorneys represent individuals and businesses in Cary, Raleigh, Durham, Knightdale, Holly Springs, Apex, Fuquay-Varina and throughout the greater Triangle.
How Common Are Bankruptcies Due to Medical Debt?
A serious illness or sudden catastrophic injury and the related loss of income can create financial stress and hardship. More than 40 million Americans have overdue medical bills on their credit reports, according to the Consumer Financial Protection Bureau.
Out-of-pocket medical costs are a common factor in many bankruptcies.
A 2019 study published in the American Journal of Public Health said that two-thirds of all bankruptcies were tied to medical issues — either because of the high cost of medical care or lost income from being out of work. An estimated 530,000 families turn to bankruptcy each year because of medical issues and bills, the researchers said.
How Does the Bankruptcy Code Treat Medical Debt?
Bankruptcy law categorizes the debts that an individual owes creditors as “secured” or “unsecured” debt. Secured debt is backed by collateral that can be seized for nonpayment, such as an automobile serving as collateral for a car loan. Unsecured debt is money owed on credit cards, to public utilities, or for services, such as medical care. The third type of debt is what the Bankruptcy Code considers priority debt, including child support, alimony and taxes.
The law recognizes that, in personal bankruptcy, some debt will have to be forgiven for the debtor to emerge from bankruptcy. Some debt may be “discharged.” Unsecured debt, including medical bills, has the lowest priority for repayment in the eyes of the Bankruptcy Court.
Depending on the type of bankruptcy pursued – a Chapter 7 liquidation or a Chapter 13 reorganization – outstanding medical bills may be discharged or potentially reduced.
Medical Bills in Chapter 7 Bankruptcy
Chapter 7 bankruptcy requires the debtor to sell off assets to pay creditors. It is known as a liquidation. But some assets are protected under Chapter 7 rules, and some debts may be forgiven. Among the debts that may be discharged are medical bills.
However, there are income limits you must meet to file a Chapter 7 bankruptcy. The Chapter 7 bankruptcy means test focuses on whether you have adequate regular income to pay some amount of money toward your debts. If you cannot, many of your debts can be discharged. If your current monthly income is less than the median income for a household of your size in North Carolina, you are presumptively eligible for bankruptcy under Chapter 7.
If not, the cost of your living expenses compared to your income may make you eligible for Chapter 7 bankruptcy. Several types of allowable expenses are considered, and each is calculated according to the number of people in your household. Recurring health care costs are calculated separately according to whether individuals in the household are younger or older than 65 years old.
What’s left when you deduct allowable expenses from your income is your disposable income. If your disposable income is more than the median monthly income in North Carolina, you may not be eligible for a Chapter 7 bankruptcy. You may have to pursue a Chapter 13 bankruptcy, which involves developing a plan to repay your debts.
A bankruptcy attorney from Sasser Law can review your finances and give you a solid estimate as to whether you will qualify to file for Chapter 7 bankruptcy. We can also lead you through the means test, help you complete the financial forms the test requires and make sure we take advantage of any conditions, caveats or special circumstances that benefit you.
Chapter 13 Bankruptcy and Medical Debt
If you cannot qualify for Chapter 7 bankruptcy, you will likely be able to file under Chapter 13.
Chapter 13 bankruptcy allows people who have a steady income to develop a plan that enables them to pay all or a portion of their debts over three to five years. Chapter 13 bankruptcy is a reorganization program and is sometimes referred to as a wage earner’s plan. It requires the debtor to devote their disposable income to the repayment plan for its duration.
In a Chapter 13 bankruptcy, the debtor submits to the Bankruptcy Court a plan for paying their debts, often through payroll deduction and a trustee who ensures distribution of payments to creditors. The plan must be confirmed by a North Carolina bankruptcy judge and is subject to objections from creditors, which the judge will hear and rule on.
Once the payment plan is completed, the court will grant a discharge of remaining low-priority debts, which includes medical bills and other unsecured debt. However, unsecured creditors must receive at least what they would have been paid if the debtor’s assets had been liquidated under a Chapter 7 bankruptcy. This is referred to as the liquidation test.
Because of the liquidation test and/or disposable income test, a Chapter 13 bankruptcy may result in paying all debts in full but, in many cases, remaining general unsecured debt such as medical bills and credit cards are reduced or discharged at the conclusion of the payment period.
Chapter 13 bankruptcy also has eligibility requirements. To file bankruptcy under Chapter 13, the filer’s debt must not exceed a limit that is adjusted each year. As of 2019, the individual debt limit was $419,275 in unsecured debt and $1,257,850 in secured debts.
A Sasser Law medical bill bankruptcy attorney can work with you to ensure you receive the benefit of the protection provided by a Chapter 13 bankruptcy filing while you work toward a clean financial slate.
How Much Does It Cost to File Bankruptcy?
Because clients’ finances are central to bankruptcy discussions, Sasser Law Firm works to be upfront about fees for bankruptcy filing and counseling.
An initial consultation with a board-certified bankruptcy attorney with Sasser Law Firm is free and involves no further obligation. We may be able to provide strategies for debt relief and/or refer you for financial counseling instead of bankruptcy.
For a Chapter 7 bankruptcy, we have a flat-fee structure based on the client’s income. Chapter 7 fees include:
- Attorney’s fee for clients with income below state median $1,000
- Attorney’s fee for clients with income above state median $1,400
- Bankruptcy Court filing fee $335
- Mandatory credit counseling fee $25
- Financial management fee $19
Total $1,379 or $1,779
A Chapter 13 bankruptcy costs you no money up front. Under Chapter 13, your costs for legal assistance and for filing can be rolled into the bankruptcy payment plan. Fees in the three- to five-year payment plan include:
- Attorney’s fee $6,500
- Bankruptcy Court filing fee $310
- Mandatory credit counseling fee $25
Total (paid over three to five years through Chapter 13 trustee) $6,835
Medical Debt Bankruptcy Attorneys Available to Help in Cary, NC
If you are overwhelmed by medical debt, please contact a medical debt bankruptcy attorney at Sasser Law Firm to discuss whether a bankruptcy filing might help you make a fresh start. The Cary, N.C., bankruptcy lawyers at the Sasser Law Firm have helped people in situations similar to yours restructure their debt obligations and move forward without a burdensome weight of medical debt.
We understand the burden that debt related to medical care can place on you and your household finances. We are ready to help you explore your legal options to get some relief. We never try to pressure anyone into filing for bankruptcy, but we will be honest with you about the steps you need to take. Filing for bankruptcy is taking advantage of a legal tool established to help honest people deal with overwhelming debt and rebuild their lives. We want what is best for each client.
Contact us at (919) 319-7400 to schedule a free consultation with a medical bills’ debt lawyer today.