Lefkovitz & Lefkovitz
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Can a Chapter 7 filing help with unmanageable medical debt?

There’s no question that medical debts can strain a family’s finances. Although studies disagree about the precise percentage of bankruptcies that might be caused by overwhelming medical debt, it’s easy to see how problems could start.

For example, an unanticipated medical emergency might impact the sole or primary wage earner in a household, resulting in the compound problem of medical bills and lost wages. Although affordable health insurance might help more families stay afloat, many sources estimate that medical debt will continue to be a leading cause of personal bankruptcy filings.

For those struggling with medical debt, a consultation with a bankruptcy attorney can provide perspective. For starters, our bankruptcy law firm does not automatically recommend a bankruptcy filing. Rather, if an individual may be able to regain financial footing through other strategies, we’ll say so. Part of our consultation may also include a review of a client’s financial habits, allowing us to understand how the debts became so unmanageable. 

Our law firm strives to offer realistic advice, addressing any misconceptions about the benefits of bankruptcy, such as the automatic stay. True, a Chapter 7 filing brings any creditors’ collection efforts to halt, including a foreclosure proceeding. However, the court may allow that lender to resume the foreclosure if the debtor cannot bring his or her mortgage current. At the same time, a client may have misconceptions about the perceived impact of bankruptcy to his or her credit score. In many cases, it is possible to start rebuilding a strong credit history shortly after the bankruptcy case is closed. 

Finally, it is important to know what types of debt can be discharged in a Chapter 7, as well as the main differences between that type of filing and a Chapter 13. Both credit card and medical debts are often classified as dischargeable debts in a Chapter 7 filing. However, liquidation accompanies that discharge, which generally means that any of the debtor’s non-exempt and unencumbered property will be sold, with the proceeds applied to his or her debt. For those with more equity or significant disposable income, a Chapter 13 repayment plan might be a better fit.

Related Article: “Choosing between Chapter 7 and Chapter 13,” copyright 2016, Lefkovitz & Lefkovitz

Source: Snopes.com, “Money, Cash, Throes,” Ki LaCapria, April 23, 2016

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