Historically, bankruptcy is the option of last resort for anyone who is deeply in debt. However, when contemplating what to do about insurmountable medical debt, bankruptcy is a viable option. The courts handle your debts in various ways. A home mortgage loan, for instance, is a secured debt that is handled very differently than medical debt, which is unsecured. During the bankruptcy registration process, all debts, secured and unsecured, must be listed. If you do not comprehend how the courts will manage health care debt, you run the risk of making a decision that will reduce your likelihood of benefiting from bankruptcy.
Taking out a second mortgage is one method by which individuals attempt to settle their health care debt. Despite the fact that this plan can consolidate medical expenses for the time being, it is limited and may not be the ultimate solution to the problem. Additionally, what was once a medical debt is now included in a mortgage loan.
Medical Credit Card Debt and Chapter 7
In Chapter 7 bankruptcies, all medical debt is dischargeable. In general, Chapter 7 bankruptcy discharges the majority, if not all, of unsecured debt. Nonetheless, the individual's assets are the primary factor in this form of bankruptcy. Under chapter 7, a substantial quantity of individual assets are protected. Some of the debt specified in a bankruptcy is secured by assets, such as mortgages and car loans. They are known as secured obligations. Any assets secured by a debt are subject to repossession or foreclosure. Medical debt, on the other hand, is classified as unsecured debt. In some instances, the majority of unsecured debts are completely wiped out in a chapter 7 bankruptcy. A person who initially takes out a second mortgage on their property to pay off medical bills and ultimately declares bankruptcy will diminish the benefits of the bankruptcy.
Medical Debt and Bankruptcy
In Chapter 13, medical debt is not eliminated, but it can be reduced to fractions on the dollar. A Chapter 13 bankruptcy is regarded as a debt reorganization. The debt of an individual is structured into a manageable payment plan spanning three to five years. In the process of reorganizing a person's debt, the court will reduce unsecured debt first, such as medical bills, before reducing secured debt secured by assets. The majority of individuals who do not qualify for chapter 7 bankruptcy will instead file chapter 13 bankruptcy. In a Chapter 13 filing, assets are better protected.
As medical debt increases, bankruptcy may become inevitable. You should not delay until you are ready to file bankruptcy before learning about its benefits. If you have an early understanding of how bankruptcies function, you will likely make decisions that do not compromise the benefits of filing for bankruptcy in the future.
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