Medical bills can quickly become overwhelming, especially after an unexpected illness or injury. If you are struggling to keep up with healthcare-related debt, you may be wondering whether bankruptcy can offer relief. The good news is that, in many cases, medical debt can be discharged, but the process and your options depend on your financial situation. For more information and skilled legal assistance, contact a knowledgeable Bergen County bankruptcy lawyer to schedule your free consultation today.
What is Medical Debt?
Medical debt is any outstanding balance owed for healthcare services, procedures, or supplies. This can include hospital bills, doctor visits, emergency room charges, prescriptions, and co-payments not covered by insurance. It is typically considered unsecured debt, meaning it is not tied to any collateral.
Can Medical Debt Be Discharged in Bankruptcy?
Yes, medical debt is generally treated as unsecured debt and can be discharged through both Chapter 7 and Chapter 13 bankruptcy proceedings.
Under Chapter 7, most unsecured debts, including medical bills, are completely wiped out. This process is often completed within a few months and is typically available to individuals whose income falls below the New Jersey median income, determined by the means test. If you qualify, this is the most direct path to eliminate overwhelming medical debt.
If you do not qualify for Chapter 7 or have significant assets you wish to protect, Chapter 13 bankruptcy provides a path to discharge medical debt through a repayment plan. Over a three-to-five-year period, you make payments based on your disposable income. Unsecured debts, like medical bills, are paid at only a fraction of what is owed, and the remaining balance is discharged upon successful completion of the plan.
It’s important to remember that certain healthcare-related debts, such as co-signed loans or debts secured by collateral, may be treated differently. Consulting with a Bergen County bankruptcy lawyer is essential to determine the best strategy for your specific situation and to ensure all documentation is handled correctly under federal bankruptcy law.
What is the Means Test?
The means test is an important part of qualifying for Chapter 7 bankruptcy in New Jersey. Its purpose is to determine whether your income is low enough to justify eliminating your unsecured debts, including medical bills.
The test compares your average current monthly income (calculated over the six months before filing) to the median income for a household of your size in New Jersey. If your income is below the state median, you will generally qualify for Chapter 7.
If your income exceeds the median, a second part of the test analyzes your disposable income. This involves subtracting necessary living expenses and secured debt payments from your income. If the resulting disposable income is too high, meaning you have enough to repay a reasonable portion of your unsecured debt, you will likely be ineligible for Chapter 7 and may instead need to file Chapter 13.
For more information, contact an experienced attorney today.