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What to know about declaring bankruptcy on medical debt

On Behalf of | Oct 21, 2021 | Bankruptcy |

It’s not uncommon to find people receiving medical bills that they cannot afford to pay in North Carolina. If you’re unable to pay a medical bill, you may consider filing for bankruptcy to eliminate it. Before you start thinking about whether you may want to file, here’s what you need to know.

Medical debt is a non-priority unsecured debt

Non-priority debt refers to a category of debts that is not a priority in terms of payment. Examples are credit card bills, past-due utility bills, personal loans, legal fees, and medical debts. Unsecured debt is not backed by any collateral, unlike secured debts, such as mortgages.

If you’re unable to pay non-priority unsecured debts during a bankruptcy filing, you typically won’t find yourself in a situation where the debt gets repaid from the liquidation of collateral. In many cases, non-priority debt is simply forgiven if there’s no money left over for repayment after secured debts, like car payments or house loans, get paid off. In other words, your medical debt can get discharged into bankruptcy.

Can you limit your bankruptcy to just medical debt?

Filing for bankruptcy can discharge all your unsecured debts, including medical bills if you follow the right procedure. Therefore, you can get relief from your medical debt through bankruptcy without limiting it to just this type of obligation.

Is filing the only way to get rid of medical debt?

It’s possible to settle or work out a payment plan with the creditor outside of bankruptcy court. Many people are successful at working out payment plans with their doctors and health care providers.

You’ll need to prove that you’re overwhelmed by debt

As an unsecured debt, medical bills are relatively low on the totem pole for repayment during bankruptcy. However, to discharge medical debts through filing for bankruptcy, you must prove hardship. This is not to say that you have to show you’re impoverished but that you’re financially strapped and unable to pay back your outstanding debts.

Filing for bankruptcy due to overwhelming medical bills might feel daunting. However, it may be unavoidable, and the process could set you up for being on solid financial footing in the future.