One of the most common kinds of debt that I see when people consult with me is medical debt.
Medical bills can quickly become overwhelming, especially when unexpected health issues arise. Even with insurance, the out-of-pocket costs can be substantial, leading many to seek relief through bankruptcy. Here’s how bankruptcy can help manage these debts and what you need to know about the limitations of new credit reporting rules. Over my 30 plus years of practice, I have helped many people in Illinois eliminate crushing medical debt. Click here for more information on how we can help.
The Burden of Medical Debt
Medical debt is a significant issue for many Americans. According to a study, nearly 1 in 5 households faced difficulties paying for medical care when needed1. This financial strain often leads individuals to consider bankruptcy as a viable option to manage their debts.
How Bankruptcy Can Help
Bankruptcy can provide a fresh start by either eliminating or reorganizing your debts. There are two main types of bankruptcy that individuals can file:
Chapter 7 Bankruptcy: The process typically takes 3 to 6 months, and most unsecured debts, including medical bills, can be discharged. Most people keep everything they own, however you need to consult with an attorney to review your situation.
Chapter 13 Bankruptcy: This type involves creating a repayment plan to pay off debts over 3 to 5 years. It allows individuals to keep their property while making manageable payments towards their debts, and can reduce the amount of debt.
Both types of bankruptcy can stop creditors from pursuing collections, providing immediate relief from the stress of overwhelming medical bills.
New Credit Reporting Rules
Recent changes in credit reporting rules have provided some relief for those with medical debt. As of July 2022, the three major credit bureaus—Equifax, Experian, and TransUnion—no longer include paid medical debt on credit reports. Additionally, unpaid medical debt will not be reported until it is at least one year old. This gives individuals more time to address their medical bills without immediate damage to their credit scores.
The Limitations: Medical Providers Can Still Sue
Despite these new rules, it’s important to understand that medical providers can still take legal action to collect unpaid bills. Also, after a year, the debts will show up on your credit report. If you fail to pay your medical debt, the provider can sue you in court. If they win the lawsuit, they can obtain a judgment against you, which may lead to wage garnishment or liens on your property.
Conclusion
While there are rules that stop medical creditors from reporting negative information on your credit report early on, they can still take legal action on the debt, and sue you. Consulting with a bankruptcy attorney can help you understand your options and navigate the complexities of the process.
If you’re struggling with medical debt, don’t hesitate to contact us at BankruptcyLawChicago.com to explore the best solution for your financial situation, to get your “Peace of Mind”.
Daniel J. Winter
312-789-9999
