Medical debt is a source of financial hardship for many Tennessee residents. When medical expenses become difficult to repay, bankruptcy may be one option to consider. Understanding how Chapter 7 and 13 works can help you determine whether bankruptcy may be appropriate.
What makes medical debt difficult to manage?
Unlike a car loan or a mortgage, medical debt rarely comes from a planned decision. An emergency or unexpected illness often creates this kind of debt. These are situations entirely outside of your control. This makes it both emotionally and financially harder to manage. In Tennessee, medical debt is one of the reasons people consider filing for bankruptcy.
How does the law classify a medical bill?
Medical bills fall into the category of unsecured debt. This means the debt has no property or collateral tied to it. Due to this, bankruptcy law treats medical bills similarly to credit card debt. Both types are legally dischargeable under federal bankruptcy law. This means your personal obligation to pay them is entirely eliminated.
Can chapter 7 wipe out your medical bills completely?
Qualifying filers can use this option to fully discharge unsecured debts, including medical bills. The process typically takes three to six months. Federal law governs how a court grants a discharge. Filing also triggers an automatic stay, which stops most creditor collection efforts immediately.
As a Tennessee filer, you may also use state exemptions to protect certain assets. The state protects home equity up to $35,000 for single filers and $52,500 for joint filers. A $10,000 wildcard exemption can also shield personal vehicles and household goods from liquidation.
When is chapter 13 the right fit for your financial situation?
Chapter 13 takes a different approach. Rather than erasing debt immediately, it builds a repayment plan that lasts three to five years. Medical debt falls into the unsecured category within this plan. As a result, your repayment may only cover a fraction of the full amount you owe. Once the plan period ends, the court can discharge the remaining balance.
Does your income level determine which option you qualify for?
Your income plays a major role in determining which type of bankruptcy you can file. Chapter 7 requires passing a means test that compares your income to Tennessee’s median income level. Exceeding Tennessee’s median income does not automatically disqualify you from Chapter 7. Allowable expense deductions may still bring your disposable income within the qualifying threshold. Chapter 13 also requires a reliable source of income to fund the repayment plan.
Exploring bankruptcy options for medical debt relief
A medical crisis should not sentence anyone to a lifetime of debt. When healthcare costs become overwhelming, bankruptcy may be an option worth considering. Chapter 7 and Chapter 13 bankruptcy offer different approaches depending on your financial circumstances. Understanding how each chapter works can help you make an informed decision.