3 ways to deal with medical debt

A medical emergency requires immediate evaluation and treatment. However, such measures can be expensive. If you lack sufficient health insurance coverage, you could be responsible for thousands of dollars in medical bills, sinking you into seemingly inescapable debt. 

If reported to a credit bureau, medical debt can negatively affect your credit score. This reduces your borrowing capability and may impact seemingly unrelated areas of your life, such as your ability to get a job. However, health care facilities generally do not report medical debt directly to credit bureaus, although a collection agency to which the provider forwards it may do so. Even if it does go to a credit bureau, new rules as of 2017 grant you credit protections such as a grace period of 180 days before listing medical debt on your credit report. 

Bankruptcy is one way to discharge medical debt. However, before it gets to that point, there are other ways that you may be able to manage it. 

1. Negotiate an alternate arrangement 

Contact the entity administering your debt, whether it be a collections agency or the health care facility. Explain your situation and see if you can arrange to pay what you owe in installments or settle for a lower amount. If you have considered filing for bankruptcy a possible outcome, let your creditors know. They may be more willing to negotiate with you in the interest of recouping more of their losses. 

2. Prioritize other debts 

Due to the protections that the new rules afford you, medical debt can have a less damaging effect on your credit than other types. If you have other debts, prioritize paying them off first. 

3. Do not use credit cards 

A credit card may seem like a way to make the problem of medical debt go away. However, credit card companies impose high interest rates and late fees, and medical creditors typically do not. Therefore, using that line of credit to pay off your medical debt could end up making your problem even worse. 

Chapter 7 vs. Chapter 13 bankruptcy

Most individuals who file for bankruptcy in the United States qualify for either a Chapter 7 or Chapter 13 filing. Your income level determines which type of bankruptcy is right for your situation. 

Explore the differences between these processes as you consider your debt relief options. 

Eligibility requirements 

Individuals who want to file for Chapter 7 bankruptcy must pass the means test established by federal law. This test looks at your household size and your income to determine whether you fall under the financial threshold. Those who do not pass the means tests because they earn too much money must file for Chapter 13. However, you cannot pursue a Chapter 13 filing if you have more than 

Discharge or reorganization of debt 

With a Chapter 7 bankruptcy, the bankruptcy court will discharge eligible debts. These include medical bills, some tax debts, credit card debts and other unsecured debts. However, if you do not fall under the income limit for a Chapter 7 filing, you must reorganize your debt with a Chapter 13 filing. With this process, the trustee assigned to your case will review your assets and debts to determine how much you can afford to repay. He or she will make a repayment plan you must follow for three to five years, after which you will receive a discharge for the remaining amount. 

Time commitment 

If you meet the requirements for Chapter 7 bankruptcy, you can complete the process and receive a discharge within about three to five months. With Chapter 13 bankruptcy, your filing is not complete until you meet the terms of the repayment plan, within five years or less depending on your financial circumstances. 

Asset treatment 

Both types of bankruptcy allow the individual to keep exempt assets, including a car, vehicle and personal items up to a certain value. Chapter 7 requires the person to sell nonexempt assets to repay a portion of debt. Chapter 13 filers can keep nonexempt assets but must pay debtors the equivalent of its value.

How to rebuild credit after bankruptcy

You likely filed bankruptcy to regain control over your financial situation. While it is huge relief to know that you have your debt under control, it also may be a bit scary to know that you no longer have any credit accounts. Having good credit is important if you ever want to buy anything that you cannot pay for in full upfront, such as a vehicle or real estate.

Rebuilding your credit after bankruptcy will take time, but it is not an impossible or even difficult task. U.S. News and World Report explains that bankruptcy will have an immediate negative effect on your credit score, but that does not last forever. If you file Chapter 7, the bankruptcy stays on your credit for 10 years, but related accounts may come off earlier.

Options to rebuild

You may think nobody will want to give you credit after bankruptcy, but that is not the case. When you file bankruptcy, you cannot do so again for eight years, so creditors look at this favorably. They know that is one less risk when lending to you. You may get a lot of offers in the mail once you file.

Some of these will be secured credit cards, which require a deposit. They work just like an unsecured card to build your credit. You may also get offers for unsecured cards, but these often have additional fees and high interest rates.

You may have other options as well, such as a credit builder loan. This type of loan is for borrowers with poor or no credit. They are usually for amounts under $1,000. Another option is becoming an authorized user on someone else’s credit card. You can get a credit boost without the liability of having the card yourself.

Whatever option you choose, it is important that you approach it carefully. Be responsible and avoid making the mistakes that helped lead to your bankruptcy.

Bankruptcy, the 341 meeting and your creditors

If you have decided to file for bankruptcy protection, you have taken the first step toward a more secure financial future. 

The next step in your journey is to attend the 341 meeting, also known as the meeting of creditors. 

Meeting background 

The 341 meeting gets its name from Section 341, Title 11, of the United States Bankruptcy Code, which contains the requirements for the first meeting of creditors. If you are filing either Chapter 7 or Chapter 13, it is here, in a location outside of court, that you will meet the trustee appointed by the U.S. Trustee’s Office to administer your bankruptcy case. 

Questions and answers 

The trustee will ask questions that you must answer truthfully under penalty of perjury. The information you provide about matters such as your liabilities, your current financial condition, property ownership and other subjects related to your bankruptcy help the trustee to better understand your circumstances. The goal is to provide efficient administrative assistance. 

Encountering creditors 

Notification of the time and place of the 341 meeting will go out to your creditors. If they attend, they may question you about matters pertaining to your bankruptcy. However, creditors rarely appear; they do not jeopardize their standing in your case if they choose to stay away. 

About attendance 

A word of caution about the 341 meeting: Be sure that you attend. Otherwise, the trustee could ask the court to dismiss your bankruptcy case. In fact, the court could order you to cooperate or face charges of contempt. 

Enjoying support 

You do not have to attend the 341 meeting alone. Your attorney will accompany you. All you need to bring is your Social Security card or a document showing your Social Security number along with government-issued photo identification, such as your driver’s license. Your attorney will provide the trustee with the necessary documents for your case, such as tax returns, bank statements and property deeds. At the end of the day, the 341 meeting usually only takes a few minutes. Once it is over, you will have cleared an important mile marker on the way to your new financial future.