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In many cases, bankruptcy is not the result of spending sprees or credit card debt; instead, almost 60 percent of bankruptcy filers cite medical bills as a primary reason for their financial situation. Read on to find out how Chapter 7 and Chapter 13 bankruptcy each deal with medical debt.

Chapter 7

Chapter 7 bankruptcy, also known as a liquidation bankruptcy, will discharge all medical debts. Through this kind of bankruptcy, a filer’s property is sold, and the proceeds are used to pay creditors, including medical bills, as much as possible. When this is completed, the unpaid bills are discharged, and creditors cannot pursue the debtor for those charges. Though Chapter 7 does provide a financial fresh start, it stays on a filer’s credit report for ten years and can negatively affect his or her ability to get a loan or buy a home.

Chapter 13

Chapter 13 bankruptcy can also deal with medical debts, but through a slightly different mechanism. Chapter 13 allows a filer to keep his or her property but sets up a payment plan through which the filer pays almost all of his or her disposable income to the creditors every month. This plan will last between three and five years, at which time the filer will receive a discharge of his or her medical debts. Chapter 13 bankruptcies can also take a toll on credit scores and will stay on the filer’s credit report for seven years.

Is Bankruptcy Right for You?

The sad truth is that all it takes is one unexpected injury or serious illness to create overwhelming medical bills that can lead to bankruptcy. If creditors are harassing you about your medical bills or if your monthly payments are more than your monthly income, it may be time to consider bankruptcy as a way to get your financial life back on track.


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