According to a recent study, even people with insurance may struggle with medical debt. Further, analysis of data from the federal court system and the Centers for Disease Control indicate that medical debt is the leading cause of bankruptcy.
There are a variety of reasons that someone could end up with large amounts of medical debt. Those who are uninsured normally have to pay for all of their medical bills out of pocket, and those bills can add up quickly. However, even for people with insurance, individuals may still struggle due to large deductibles or an insurance plan that fails to cover 100 percent of all expenses.
In these cases, outside of paying what they owe immediately, people generally have two main options for dealing with medical debt: financial counseling and bankruptcy.
Using Credit Counseling Services
There are a variety of credit counseling services available, and they can offer help for individuals who have excessive amounts of medical debt in a number of ways. Counseling services can help you figure out if your budget may be preventing you from paying off medical bills faster. Examples of this can range from cutting down on entertainment spending to re-prioritizing how your debts are paid back, such as paying back debts with the highest interest rates first so that you end up owing less overall.
These services can also work with your creditors to make eliminating your debt easier. Counseling services may be able to arrange for monthly payments, lower monthly payments if they are already in place and reduce the total amount of what you owe. Further, many services will allow you to make monthly payments to them and then distribute the payments among medical providers that you owe money to.
Filing For Bankruptcy
While credit counseling can be helpful to many individuals, some people have more medical debt than they can manage to pay back. In these situations, someone might want to consider filing for Chapter 7 bankruptcy.
The main benefit of Chapter 7 bankruptcy is that you can usually eliminate most or all of your debt. However, there are a few exceptions to this. Chapter 7 only eliminates unsecured debt, like credit cards and medical bills. If you are still paying on a house or a car, Chapter 7 will not discharge these loans.
Additionally, certain types of unsecured debt, such as federal debt and student loans, may also not be eligible for Chapter 7. That said, medical debt is unsecured, and there’s no limit to the amount of medical debt that can be eliminated with a Chapter 7 filing.
Before filing for bankruptcy, you should be aware that there are several potential downsides to doing so. The first is that the bankruptcy will show up on your credit report for 10 years. This can make it hard to get credit, and if you are able to obtain credit, you’ll likely face higher interest rates or fees. Further, you must be eligible to file for Chapter 7. Requirements of a Chapter 7 bankruptcy include not making more than a certain amount of money, going through a federally approved credit counseling course and not having filed for bankruptcy in the last eight years.
While medical debt can feel overwhelming, especially since bills can add up quickly, people have a number of options for how to deal with debt. In addition to working with a credit counseling agency to create a plan for quick repayment, you can also file for bankruptcy to immediately eliminate what you owe.