What Is Medical Bankruptcy?
People are often surprised to learn that medical bills are the number one cause of bankruptcy in the United States. There is no doubt that healthcare costs are out of control, and far too many people find themselves struggling under outrageous debt as a result of their medical care. While countless others live in fear that they will be struck with such crippling bills, careful planning can make it possible for those with lower incomes to protect themselves from some of the worst consequences.
For those who still find themselves overwhelmed by medical bills, however, there is help available through special state laws which offer protection known as medical bankruptcy (also sometimes referred to as “medical debt relief”).
What Is Medical Bankruptcy?
Medical bankruptcy is a process designed for low-income individuals and families to be relieved of medical debt after proving their inability to pay.
What Does Medical Bankruptcy Protect?
People who file for bankruptcy protection under this category are not required to include medical bills in the standard bankruptcy proceedings. This means that, while most debts will be discharged, doctors and hospitals cannot pursue collection efforts against patients, even if they receive payment through other sources such as insurance.
Of course, you should know that medical providers can attempt to get the costs covered by the patient’s insurance company before filing suit to collect on a former patient’s outstanding balance. This is why it is so important for patients without adequate savings or insurance coverage to take advantage of this special provision in state law.
When Are Medical Bills Included In a Bankruptcy?
Even if a person files for bankruptcy protection under Chapter 7, medical debts may still be discharged from the proceedings. However, this will only occur if the bills are considered non-dischargeable on one of three official grounds:
1) The debtor is not actually at fault for incurring the debt (i.e., it resulted from natural causes or accidents rather than intentional behavior)
2) There was no actual intent to incur the debts
3) The charges were incurred after legal marriage, these charges were ordered by an attorney or judge, or they involved fraud committed against the debtor within 90 days of filing.
How Does Medical Bankruptcy Compare To Other Types?
Since most people do not fall under any of the three limited circumstances listed above, medical bills are usually included in bankruptcy proceedings. Filing an application for relief through Chapter 7 automatically puts a stop to creditor lawsuits and allows debtors to discharge most types of unsecured debt up to certain limits which vary based on state and federal laws. When seeking protection under this type of bankruptcy, it is important that applicants meet specific criteria including:
• Not having enough money or other valuables to repay creditors;
• Allowing the court to liquidate all property except what’s specifically excluded by state law (such as tools needed for work);
• The inability to repay creditors while maintaining a minimal standard of living over a five-year period [more than 70 percent of income];
• The ability to meet all filing fees and other costs.
Before filing for bankruptcy, applicants must also consider whether they might be able to negotiate a settlement with creditors instead. In either case, it is important to understand that the rights of third parties (like insurance companies or landlords) may be affected by a bankruptcy filing or a failure to make payments on outstanding debts. If you are having trouble keeping up with your bills and think that bankruptcy might help, talk things over with an attorney who can advise you on critical factors such as:
• Which form of bankruptcy is right for your situation;
• Whether you should file before working out deals with individual creditors;
• How much money you will need to keep on hand for filing fees and other costs;
• How long the bankruptcy proceedings will take.
In some cases, it might be better to seek an alternative or consider hiring a professional debt relief agency. Both options are designed to help you with your financial problems so that you can start rebuilding your credit as soon as possible after completing either type of bankruptcy proceedings.
Does Medical Bankruptcy Hurt your Credit Score?
Even if you successfully navigate the bankruptcy proceedings, you might not be able to avoid long-term consequences related to your credit score. Since medical bills are commonly submitted in error or inaccurate billing practices, having them discharged from the proceedings could hurt your credit score because of incomplete payment history. However, there are ways that you can start rebuilding your finances after bankruptcy – even within the same year!
For instance, it is possible to establish an installment plan with all major creditors to ensure timely monthly payments. This will improve your credit score while keeping stress levels low and giving you time to take stock of how expensive mistakes were made in the past.
How Can I Avoid Medical Bankruptcy?
Below are several ways to avoid medical bankruptcy;
- Know your plan benefits. When you are on an employer-provided health care plan, make sure you know what type of coverage will be provided (e.g., inpatient or outpatient procedures) and how many limits exist on certain types of coverage (e.g., annual maximums).
- Be aware of the payment cycle for medical services. Make sure that you understand when your insurance provider is expected to pay claims submitted by providers (and when providers expect to get paid).
- Think ahead about future expenses if you see the potential for significant changes in your life (e.g., marriage, divorce, birth of child). Even a one-month lapse in health insurance due to job loss can cause big problems because it could result in denied claims.
- Review your past bills. Check to see how much you have spent on premiums for your insurance plan, what deductible you must meet before benefits kick in, and what percentage of health care costs will be paid for by your employer (if any).
- Turn to websites like HealthCare Bluebook to find out the average cost of procedures performed in different areas of the country so that you can choose a provider who offers fair pricing.
- Negotiate prices ahead of time if possible because it is possible that some providers might offer discounts depending on the volume or value of their work orders with larger networks or preferred suppliers.
- Always check rates before scheduling surgery at an outpatient location because many facilities offer discounts when patients choose to have procedures done in their offices instead of more expensive hospital-based outpatient centers.
- Review your claims for accuracy and ask your insurer to explain why certain payments were denied. Even if you are not satisfied with the response, it is important to follow up with questions before disputing a claim because some denials are legitimate even if they might seem unfair at first glance.
Bankruptcy can be a stressful event that causes problems for many years to come. However, the only way to avoid bankruptcy is by taking proactive steps to understand your health care plan and managing your spending so that out-of-pocket expenses are kept low.