Bankruptcy stops collection for medical debt as soon as the case is filed and, in the long run, eliminates medical debt forever. When someone is suddenly injured or suffers an illness, the result to this person’s finances can be devastating. Even if they have insurance, the portion they are responsible for can be far more than they can ever pay back. In addition, they may have had to leave work for a long period of time to recover. When a person takes out debt, they plan on a steady income into the future to pay it back. An illness or accident can upset the whole plan and the result if often bankruptcy. With this in mind, bankruptcy laws are set up to allow the honest, unfortunate debtor a financial fresh start.
Medical debt is like credit card debt or other debt that his not backed up by property. It is called a general unsecured debt under the bankruptcy laws. This class of debt is the lowest priority of debt to be paid in either a Chapter 7 or a Chapter 13. Both kinds of bankruptcy allow people to concentrate of secured debt, such as a mortgage or a car loan, while eliminating general unsecured debt.
When someone has a high amount of medical debt, the trustee is going to want to know if the medical debt is from an accident that the debtor could sue somebody for. If the debtor has the right to collect money from an injury, it could be considered an asset in the bankruptcy case. It does not matter if a lawsuit has actually been filed. As long as the injury occurred before the filing of the bankruptcy, it is an asset in the bankruptcy case. A trustee could step into your shoes and hire a lawyer on your behalf to sue the person who caused the injury. If you think you have to right to recover for an injury, you should explore this issue with both a personal injury lawyer and a bankruptcy lawyer before you file bankruptcy. Bankruptcy laws provide exemptions that can protect much of the recovery but the case needs to be disclosed when you file and the exemptions need to be claimed.