Unfortunately, medical debt is a common reason people file for bankruptcy. Even with health insurance, medical bills can be overwhelming, and bankruptcy may be the best option. At the Bankruptcy Center of Illinois, we make sure that your legal rights are protected through aggressive legal representation. As collections and credit attorneys, we help debtors throughout DuPage County obtain relief and guide them through the process of filing for bankruptcy and discharging debt.
Medical debt is unsecured debt, not secured by collateral. Collateral can be an item such as a car, house, or another good. If you do not repay a loan that is secured by collateral, a creditor with a lien can repossess or foreclose on the property. An unsecured creditor does not have the right to take your property without obtaining a judgment through a lawsuit and enforcing the judgment.
Unsecured debt is further categorized into priority or non-priority debt. Student loans, certain taxes, and child support are examples of priority unsecured debt. During bankruptcy, a trustee is tasked with repaying creditors. Secured creditors and priority unsecured creditors are first in line. Trustees in a Chapter 7 or Chapter 13 bankruptcy typically do not prioritize medical debt. For this reason, medical debt may be the last type of debt to be repaid, if it is repaid.
When facing significant medical debt, you may be wondering whether to file for Chapter 7 or Chapter 13 bankruptcy. The difference between these types of bankruptcy may come down to whether you pass the means test. This test will examine your average Illinois income and your income, minus all necessary expenses. If your monthly income falls below the Illinois median, you are eligible to file for Chapter 7.
Chapter 7 bankruptcy involves a trustee repaying creditors through the process of liquidating non exempt assets. Funds are then distributed by priority to creditors. Often, not all creditors are repaid because there are not enough assets. Again, medical creditors are a non-priority unsecured creditor, and in this circumstance, will not get fully repaid. Chapter 7 bankruptcy does not cap the amount of medical debt you may discharge. As a nonpriority type of debt, medical debt is eliminated through Chapter 7 bankruptcy.
If you have substantial assets and are employed, you may elect to file Chapter 13 bankruptcy. Chapter 13 bankruptcy is an option that provides more time to pay the balance on debt. It is typically appropriate for those people with a higher income.
According to Chapter 13 bankruptcy, you will attend credit counseling to set a plan to repay debt over a period of three to five years. Chapter 13 is attractive if you have assets that you may lose in a Chapter 7 bankruptcy. Chapter 13 bankruptcy provides repayment of a portion of medical debt through a repayment plan.
Your bills and debt will be lumped together under Chapter 13 bankruptcy. If you cannot pay your bills and make monthly payments to creditors, you may not qualify for Chapter 13. There are debt limits to Chapter 13. If your debt falls below the limit, you may file for Chapter 13 and secure relief for most of your medical bills.
During the bankruptcy proceeding, you will need to keep covering your health insurance. In certain circumstances, bankruptcy courts may use automatic wage garnishment to cover costs for health care.
At the Bankruptcy Center of Illinois, we represent debtors tackling medical debt. Whether you file for Chapter 7 or Chapter 13 bankruptcy, our DuPage County collections and credit lawyers provide efficient legal representation that is tailored to your specific circumstances. You can overcome your medical debt and achieve financial relief. Call our office at (773) 993-0024 or reach us online to learn more.