Bankruptcy and Medical Debt Relief in Towson, MD

Seek Medical Debt Relief Through Bankruptcy

Facing significant medical expenses can be a heavy burden, and seeking potential avenues for resolution should be on top of mind. Opting for bankruptcy brings about various advantages, offering a chance for a fresh start. Individuals, especially in Towson, Maryland, grappling with overwhelming medical debt, should seek legal counsel to navigate the complexities of bankruptcy and medical debt relief in Towson, MD.

For many residents of Towson, a crucial financial aspiration is to gather wealth, ensuring a more comfortable future for the next generation. Unfortunately, unforeseen injuries or illnesses can disrupt this plan, altering circumstances abruptly. 

Short Summary:

• Medical debt burdens many, especially low-income folks and minorities.
• Bankruptcy isn’t a medical-only escape. All debts matter when filing; it’s just a broader solution.
• Good news for medical bills—they’re easier to wipe clean in bankruptcy than secured loans.
• There are two main bankruptcy options to choose from. Chapter 7 for a quicker way to eliminate debt or Chapter 13 for a multi-year repayment plan.
• Beyond bankruptcy, try negotiating with providers, exploring assistance programs, etc.
• Some financial red flags when overwhelmed with medical debts are avoiding draining your retirement, consolidating debt without a plan, or unrealistic home refinancing.

Whether it’s a sick child, parent, spouse, grandchild, or any family member, the impact of a medical illness can be a devastating shock, leading to unexpected financial repercussions such as job loss or reduced income. Opting for medical bankruptcy can be a viable solution to alleviate the burden of accumulating medical bills.

What Does Bankruptcy Mean?

Bankruptcy is a legal status that signifies an individual or entity’s inability to repay their outstanding debts to creditors. It is a formal declaration that one cannot meet financial obligations and seeks protection from creditors and a structured process to address the debt situation. The goal of bankruptcy is to provide a fresh start for the debtor while ensuring fair treatment for creditors.

Bankruptcy is often considered a last resort, pursued when alternative measures to manage debt are not feasible. While bankruptcy can provide relief from overwhelming debt, it also has consequences, such as impacting credit scores and potentially affecting the individual or entity’s ability to secure credit in the future.

What is Medical Bankruptcy?

The term “medical bankruptcy” lacks a specific legal definition, with some bankruptcy lawyers using it to describe situations where substantial medical and doctor-related debts contribute significantly to bankruptcy. Remember that filing for bankruptcy solely to address medical debts is not permissible. All types of debts, including medical ones, must be included in the bankruptcy petition. 

The filing process necessitates a comprehensive list of all debts and encompasses medical debts. In cases where medical debts lead to wage garnishments, individuals often consider bankruptcy as a means to halt these actions and navigate unexpected financial challenges.

What is Medical Debt? 

Medical debt arises from various factors, including escalating insurance costs, lost wages, high out-of-pocket expenses such as co-pays, medical supplies, prescription drugs, and unreimbursed medical treatments and surgeries. 

That also means medical debt refers to individuals accruing debt from medical expenses, with a significant portion of third-party debt collections comprising medical bills, particularly affecting people with disabilities and lower incomes, making minorities more susceptible. While there isn’t a specialized bankruptcy for medical debt, it is forgivable and categorized as unsecured debt without collateral. 

Filing for bankruptcy includes medical debt with other debts like credit cards and personal loans. Despite medical debt being a common reason for bankruptcy, assessing all debts before deciding the optimal approach is crucial. Unsecured debts, such as medical bills, are more likely to be eliminated during bankruptcy proceedings.

Could Bankruptcy Provide Relief For My Medical Debt?

Contacting the billing department of your hospital or clinic might provide an opportunity to negotiate a reduction in your medical bills. Some medical facilities have initiatives, such as financial aid programs, aimed at forgiving medical debts for qualifying patients. Additionally, numerous healthcare providers offer interest-free installment plans for individuals unable to make immediate full payments. Resorting to credit card withdrawals or depleting savings or retirement accounts to settle medical bills can jeopardize your financial stability and hinder future savings.

Bankruptcy is a legitimate financial strategy that can bring relief when faced with overwhelming medical debt. Medical debt, considered unsecured debt, is often forgiven in personal bankruptcy cases, encompassing any medical expenses charged to credit cards.

How Can Chapter 7 Help With Medical Debt?

Chapter 7 bankruptcy typically eliminates all medical bills because these bills are categorized as general unsecured debt, similar to credit card debt and personal loans. To qualify for Chapter 7, individuals or couples filing for bankruptcy must pass the means test, which usually involves having an income below the median income for their state and household size. 

In Maryland, the means test thresholds, effective from November 1, 2019, are:

• Household Size: 1, Median Income: $69,529
• Household Size: 2, Median Income: $86,815
• Household Size: 3, Median Income: $104,390
• Household Size: 4, Median Income: $125,989
• Household Size: 5, Median Income: $134,989

Even if the debtor’s income exceeds these amounts, certain deductions may still allow them to qualify for Chapter 7. Exemptions from the means test include disabled veterans, reservists, or National Guard service, and having primarily non-consumer debt.

While other considerations factor into the decision to file under Chapter 7, assuming all requirements are met, it provides a swift process for eliminating medical debt. In Maryland, a Chapter 7 discharge is typically granted three to four months after filing the case.

How Can Chapter 13 Address Medical Debt?

Chapter 13 bankruptcy involves placing the filer on a three- to five-year payment plan with debts prioritized according to the Bankruptcy Code. Medical bills are categorized as general unsecured debt, placing them at the lower end of the priority scale, and are typically paid last. 

Frequently, medical debt is settled for a fraction of the owed amount, while higher-priority debts, like mortgage arrears, tax debt, and secured debt, take precedence. Medical bills will be discharged or eliminated once the Chapter 13 bankruptcy plan is completed, and the Chapter 13 discharge is issued. 

What Alternatives Exist Besides Bankruptcy for Managing Medical Debt?

Individuals with a positive credit history have several alternatives to address substantial medical bills.

Negotiate with the Medical Provider

Initiate negotiations after resolving any issues related to insurance payments. Once all available insurance coverage has been applied, consider engaging in discussions with the creditor to settle. If the bill pertains to uninsured medical expenses, the medical provider might be open to waiving a portion of the total amount. Many hospitals and healthcare providers regularly extend bill waivers or offer discounts for uninsured patients.

Explore Assistance Programs

Most hospitals offer assistance programs that, if you meet the eligibility criteria, can provide free or reduced-cost hospital care based on your income level. For example, the Hospital Care Assurance Program (HCAP) in certain states covers expenses for essential medical services. 

Additionally, non-profit hospitals with federal tax-exempt status may be required to offer more lenient billing terms for financially strained patients. Consult with your hospital’s financial aid counselor to gather more details and apply for relevant coverage.

Debt Management Strategy

Explore the option of a credit counseling agency before medical bills become overwhelming. Non-profit credit organizations can assist in devising a repayment plan, potentially offering extended terms with reduced interest rates and devoid of fees.

What to Avoid When Dealing with Overwhelming Medical Debt

Some actions are not advisable when facing overwhelming medical debt.

Cashing Out Your 401(k)

It is generally not financially prudent to withdraw funds from a retirement account. In Maryland bankruptcy, retirement funds are typically fully exempt, protecting them from creditors, including medical bill collectors. Early withdrawals from retirement accounts also incur substantial tax penalties.

Debt Consolidation

Another option some people consider is debt consolidation, but it is not a suggested course of action. In July 2019, Freedom Debt Relief, the largest debt consolidation company in the United States, settled a case with the Consumer Financial Protection Bureau (CFPB), agreeing to pay $25 million due to deceptive practices in sales and fees. In Maryland, FDAA, a debt consolidation company in the state, faced legal action from the CFPB and was ordered to pay $4.9 million in redress and a $16 million penalty.

Refinancing

Attempting to refinance a home is often not viable because lenders assess a debt-to-income ratio, which individuals with substantial debt do not meet frequently.

Contact Our Towson Bankruptcy Attorney Today!

For residents of Towson, Maryland, The Grafton Firm is here to support your legal needs. Our team is committed to offering guidance and solutions tailored to your specific circumstances, especially matters of bankruptcy and medical debt relief in Towson, MD.

If you’re facing challenges related to medical debt or considering bankruptcy, we encourage you to contact us for a free consultation. Our experienced legal team is ready to discuss your situation, provide insights, and explore potential avenues for relief.

Take the first step toward managing your financial concerns and contact our law firm. Your initial consultation is complimentary, allowing you to make informed decisions about your legal options. We are committed to assisting Towson residents in navigating the complexities of their unique situations.