Debts That Are Seldom Discharged In A Chapter 7 Bankruptcy
A bank or credit card company can ask for the discharge of a debt. If the bank believes the debtor has lied about their credit application, this can occur. Sometimes, credit card firms object to the argument that the filer never intended on paying the debt and is abusing bankruptcy.
The United States bankruptcy law decides whether an individual debtor or objecting creditor must prove their case. This problem can be avoided by putting an end to your use of credit cards immediately after you file bankruptcy. You can ask your credit counselor during mandatory pre-bankruptcy counseling if you are unsure how to adjust your budget to your monthly income. It may simply mean that you stop paying your monthly debt payments.
Some Unsecured Debts Can Only Be Discharged In Chapter 13 Bankruptcy
There are several types of unsecured debt that cannot be discharged in a Chapter 7 bankruptcy, but can be discharged in a Chapter 13 bankruptcy. These include:
- Debts for willful and malicious injury to another person or entity or the property of another person or entity
- Fines, penalties, or forfeitures payable for the benefit of a governmental unit, and that are not compensation for actual pecuniary loss
- Debts arising before a prior bankruptcy in which the debtor was denied discharge
- Debts for criminal restitution under federal law
- Debts incurred in a divorce and that are not child support or alimony
- Debts incurred to pay a federal tax
- Debts incurred to pay fines or penalties under federal election law
Discharging Debt With Medical Bankruptcy In Indiana
Here in Indiana, theres no legal definition of medical bankruptcy. In fact, its not even a term thats defined in the U.S. Bankruptcy Code.
Medical bankruptcy is a smart way of using personal bankruptcy to target medical bills. Generally speaking, you can use either Chapter 7 or Chapter 13 bankruptcy to accomplish the goal of erasing medical debt.
Most medical debt is eligible for discharge in bankruptcy because its unsecured debt debt thats not secured by something tangible like a vehicle or house. The bankruptcy court will work with you and your lawyer to establish the scope of your debts, determine which can be discharged, and essentially force your medical providers to accept a resolution.
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Medical Debt Makes Health Problems Worse
The irony of dealing with medical debt is that you might be undoing a lot of the good that came from the services that cost you so much. You pay medical professionals to treat your immediate medical concerns, but the exorbitant cost of that care leaves you in debt.
Debt and the pressure it brings if you cant keep up is extremely stressful. Out-of-control stress caused by your debt negatively affects your health and triggers additional problems. Its a vicious cycle that drains you and impacts your quality of life.
You can learn more about the negative effects of debt stress here.
Filing for bankruptcy, even if it is not something you ever imagined doing, relieves you of all or part of your debt obligation and eliminates the stress you face regarding the cost of your medical care. Youll not only enjoy financial benefits from filing, but youll also reduce your health risks.
Recent Definitions Of Undue Hardship
Although not necessarily the same as undue hardship, financial hardship has a similar definition. Financial hardship is defined in the regulations for administrative wage garnishment as:
- An inability to meet basic living expenses for goods and services necessary for the survival of the debtor and his or her spouse and dependents.
Financial hardship is determined by comparing costs incurred for basic living expenses for the borrower, the borrowers spouse and the borrowers dependents with all income available to the borrower from any source. The regulations for administrative wage garnishment were added in 2003 and are based on the Debt Collection Improvement Act of 1996 . Although Congress did not initially define the term ‘undue hardship,’ the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added a definition of undue hardship at 11 USC 524:
- It shall be presumed that such agreement is an undue hardship on the debtor if the debtor’s monthly income less the debtor’s monthly expenses as shown on the debtor’s completed and signed statement in support of such agreement required under subsection is less than the scheduled payments on the reaffirmed debt. This presumption shall be reviewed by the court.
This is the equivalent of the first prong of the Brunner Test.
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Filing For Bankruptcy Provides Immediate Protection From Creditors
The automatic stay protects you once you file a bankruptcy petition for any kind of bankruptcy. The automatic stay prohibits creditors, banks, credit card companies, or anyone else that you owe money from contacting you and taking any other collection actions.
The only exceptions are domestic support obligations and back taxes. This will continue to occur if your child support payments are taken directly from your paycheck. If you owe back taxes, the Internal Revenue Service is allowed to keep your tax refund to pay for it even after you file bankruptcy. The automatic stay is temporary. The automatic stay ends when the bankruptcy court grants you your discharge.
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.
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May An Employer Terminate A Debtor’s Employment Solely Because The Person Was A Debtor Or Failed To Pay A Discharged Debt
The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee discriminating with respect to hiring or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.
Medical Debt In Bankruptcy
If you can’t settle the debt and it looks as if the creditor may pursue you for payment, then your good credit is going to take a hit anyway because a collection action will show up on your credit report. Also, if the provider sues you and gets a judgment, it can garnish your wages or take other collection action.
Not only can filing for bankruptcy wipe out your debt, but the sooner you file, the sooner you’ll be back on the road to financial recovery.
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Review Your Options For Eliminating Your Medical Debt
Interested in eliminating your medical debt once and for all? Discuss your options with a Michigan attorney at Hensel Law Office, PLLC today. For this reason, you have nothing to lose by taking the first step today.
Obtain financial freedom from your medical debt. Contact our office at 258-0651 for your free initial consultation.
Proposed Legal Changes To Student Loan Discharge In Bankruptcy
Before 1976, student loans could be discharged in bankruptcy without a waiting period and without requiring the borrower to demonstrate undue hardship prior.
But a 5-year waiting period was added by the Education Amendments of 1976 for borrowers who could not demonstrate undue hardship. The waiting period was increased from 5 years to 7 years in 1990 through the Crime Control Act of 1990 and eliminated in 1998 through the Higher Education Amendments of 1998.This left demonstrating undue hardship as the only option for discharging student loans in bankruptcy. But Senators Richard Durbin and John Cornyn introduced the FRESH START Through Bankruptcy Act of 2021 on August 4, 2021.
TheFRESH START ACTwouldrestore the ability of borrowers to discharge federal student loans after a 10-year waiting period without demonstrating undue hardship. And under certain circumstances, the college attended by the student when the loans were borrowed would be required to repay as much as half of the discharged debt.
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Secured Vs Unsecured Debts
A secured debt is any debt that has collateral, such as a house loan or car loan. It means if you cannot afford to pay for it, the creditor is “secured” in getting their money back because they can seize the property.
Unsecured debt is any debt that does not have collateral behind it. While you might have received a service or purchased an item, it is not a property that a creditor can seize. This includes credit card debt, medical bills, utility bills in your home, and any other common type of debt.
These are both different than priority debts. A priority debt does not pay for any property, cannot be discharged, and must be paid back. This includes student loans, child support payments, taxes, court-ordered fines, and spousal support .
Your total debt may be a mix of these three types. All unsecured debts are dischargeable in Chapter 7 bankruptcy, but not in Chapter 13 bankruptcy .
What Type Of Bankruptcy Should I File
If you have substantial medical debt and pass the means test, your best option may be to file Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the trustee is tasked with getting creditors repaid to the extent possible by liquidating all nonexempt assets and distributing the funds in order of priority. In most Chapter 7 bankruptcies, however, there are insufficient assets for purposes of repaying all creditors. This means that medical creditors, as non-priority unsecured creditors, will not get repaid in full, or at all. There is no cap to how much medical debt you are permitted to discharge through Chapter 7.
For people with substantial assets who pass the means test, Chapter 7 may not be the best option when trying to wipe out significant medical debt. For those debtors, assuming they are employed, Chapter 13 may be a better choice. Under Chapter 13, you will need to attend credit counseling and devise a debt repayment plan to pay off debts over a 3-5 year period. The plan must address all secured debts and some of the unsecured debts. This means that some medical creditors may get repaid, depending on your income and how many secured debts you have.
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Contact A Bankruptcy Lawyer Today
If youre considering filing bankruptcy and would like to learn more about Chapter 7 or Chapter 13 bankruptcy, contact an attorney at CMC Law today. We will help you decide what decision is best for you based on your financial situation.
You can learn more about your options by consulting with a bankruptcy attorney or by checking out more on Chapter 7 and Chapter 13 Bankruptcy. Or, start by finding out about the steps involved in bankruptcy once you decide to file.
What Is Medical Bankruptcy
As many as 62% of bankruptcies include significant medical debt, according to a study the Maine Law Review. Despite causing so much financial stress, there is no actual medical bankruptcy.
When you file for bankruptcy, you are required to make a list of your debts. Thats stuff like credit cards, mortgages, personal loans, utility bills all the money you owe but cannot pay.
Its highly unlikely medical bills would be the sole source of debt in any bankruptcy, and all creditors are supposed to be treated fairly. You cant simply ignore the ones you dont want to deal with.
Treating creditors fairly does not mean they are treated equally, however. If the debt you owe is unsecured, meaning you havent pledged property to guarantee payment, it is put into one of two categories priority and non-priority.
Priority means those debts go to the head of the line. The government usually comes first if you owe taxes. Then comes debts like alimony and child support.
If theres little money remaining by the time medical bills get to the head of the line, its too bad for those creditors. They may get pennies on the dollar or nothing at all. Either way, youd no longer owe anything.
The main question is which form of bankruptcy is best for you?
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Is Declaring Bankruptcy To Discharge Medical Debt An Option
Sadly, nearly 1.7 million American households have had bankruptcy due to mounting medical expenses.
This type of debt creates major stress and has become a fairly common reason to file.
So, can you declare bankruptcy solely for your medical bills? The answer is no.
All of your debts will be included in a bankruptcy in order to be fair to creditors.
The good news is that your medical debt will be part of your discharged debts if you decide to declare bankruptcy.
How Medical Bills Are Treated Under Chapter 13 Bankruptcy
You must qualify for Chapter 13 as welland it can be expensive. You must make enough to pay the required amounts through your three- to five-year Chapter 13 repayment plan. Also, your medical bills and other debts can’t exceed the allowed Chapter 13 debt limits.
You’ll start by separating your debts into different categoriespriority and nonpriority unsecured debt. Debts such as domestic support obligations and recent overdue taxes receive special priority treatment and must be repaid in full. You’ll also need to pay any mortgage, auto loan, or other secured debt arrearages if you want to keep the property.
Most other debts, including medical bills and credit card balances, don’t receive priority treatment. They’re all lumped into one “general unsecured” debt category. Each creditor gets a pro-rata portion of the amount remaining after higher priority debts get paid.
Some people won’t have any money remaining and will have what’s known as a “zero percent” plan, which is fine in many courts. Others will have enough to pay creditors in full. Most debtors fall somewhere in between. The amount you’ll have available to pay will depend on your income, expenses, and nonexempt assets. The court will discharge the balance of qualifying debts when you complete the plan.
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When Should I File Bankruptcy For Medical Bills
Thatâs another hard question. Filing bankruptcy is not right for everyone or every situation. Some factors to consider are:
The amount of medical debt: Can you pay it off in a year with monthly payments?
Your total debt: Are you juggling multiple debt repayments every month?
The amount of money you earn: What type of bankruptcy can you file?
The exemptions you can claim to protect your property: Would you lose any property by filing bankruptcy?
A free credit counseling session can help you figure out whether bankruptcy is the best debt relief option for you.
Our Medical Debt Relief Attorneys
Our debt relief attorneys know that discharging medical debt may not be something you ever thought you would have to consider. However, sometimes you may need to declare bankruptcy because of a result of debts that were not voluntary. Phoenixs leading cause of bankruptcy is medical debt and doctors bills. Thankfully, there is relief for people struggling with medical debt. Their debts can be eliminated through chapter 7 or chapter 13 bankruptcy.
Above all, several of lifes circumstances can create financial hardship. Additionally, medical debt cost can quickly become overwhelming: multiple Dr.Appointments, rising prescription costs, and many other medical procedures.
Plus, medical debt in Arizona affects individuals with insurance, and those without insurance. Nevertheless, a bankruptcy discharge through chapter 7 and chapter 13 bankruptcy may be the debt relief you seek in order to eliminate your Arizona medical debt. Generally, medical debt and cost is considered unsecured debt. Unsecured debt is completely eliminated in a bankruptcy filing.
What is a Medical Bankruptcy?
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Should I Delay Bankruptcy If I Will Be Incurring New Debt
Since you would only be able to discharge debts that have been included in your bankruptcy petition, it may be in your best interest to delay your filing if you know that you will be incurring new medical debt in the near future. This will help you to ensure that you are not saddled with additional debt after completing the bankruptcy process.
If you are unable to hold off any longer, for whatever reason, it is important to note that you have the option tofile for bankruptcy a second time if necessary. Depending on the chapter that you file under, however, you may be required to wait anywhere from 2 to 8 years before you can file again. That being said, you should not hesitate to weigh your options before filing.
Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
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