Do you have signicant medical debt?
Did you know that a large percentage of Chapter 7 bankruptcy filers cite medical debts as the main reason for bankruptcy?
The American Journal of Medicine published a 2009 study that examined the primary cause of bankruptcies in 2007. According to the study, 62 percent of the respondents attributed their bankruptcy to medical debt or a loss of income due to a medical problem. Of those surveyed, almost 75 percent of individuals had medical insurance. The study's findings are still applicable today.
Medical debt includes money owed to a doctor, hospital or other care provider. Fortunately, Chapter 7 bankruptcy releases your obligation to pay medical expenses by wiping out most unsecured debts.
Not all debts are discharged at the conclusion of a Chapter 7 bankruptcy. However, the process releases some debt that is not secured by collateral such as medical debt and credit card debt.
Once the debt has been discharged within the Chapter 7 bankruptcy process, hospitals and collection agencies may not call or harass you about money that you once owed. The bankruptcy makes the debt nonexistent.
Do you qualify for Chapter 7 bankruptcy?
The "means test" is the qualification step required for anyone looking to file Chapter 7.
The first step in the Chapter 7 bankruptcy means test compares your income to the median income in your state for a family the same size as your own. If your income is lower than the median income, you probably qualify for this strategy. However, if your income is higher, it does not automatically mean that you are ineligible for Chapter 7 bankruptcy. The second step of the test will help determine if you qualify.
The second step breaks down into smaller parts. Specific allowable expenses (as determined by IRS guidelines) are subtracted from your income to find your "disposable income." If your projected disposable income equals less than $6,000 ($100/month) over the next five years, you may be eligible to file under Chapter 7. On the other hand, if your disposable income is more than $10,000 over the next five years, you probably do not qualify.
If you are somewhere in the middle ($6,000 and $10,000), your disposable income over the next five years will be compared to a percentage of your unsecured debt to determine whether you are capable of repaying your creditors. If your disposable income is more than 25 percent of your unsecured, non-priority debts, you will probably be ineligible for Chapter 7. If your disposable income over a five-year period is less than 25 percent of your unsecured debt, you will likely meet the criteria for Chapter 7.
Evaluating your eligibility for Chapter 7 involves complex calculations. It may help to retain an experienced bankruptcy attorney who can break down the calculations for you. Even if you do not qualify for Chapter 7 bankruptcy, several other debt-reducing options can help address your medical debt.
At Illini Legal Services, we offer a free, no-obligation consultation to each of our clients. During your consultation, we will take the time to listen to your financial concerns and assess your case and individual situation. We have five locations to serve you. Contact us today for help!
Illini Legal Services is engaged in the private practice of law and is not a public legal aid agency. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.