How to File for Medical Bankruptcy

It is a frequent misconception that those who file for bankruptcy do so because they allowed their unsecured debts (credit cards) to get so out of control they could no longer pay them.  This however, is not as true as it is thought to be.  In 2003-2004 over 50 percent of all those filing for personal bankruptcy did so as a result of medical debt, despite having health insurance.  In many cases, the debt is not overwhelming.  From that same time period they found among those filing bankruptcy due to medical debts 20 percent of them involved a medical debt of less than $1,000, and about 40 percent had a medical debt of less than $5,000, and 13 percent had a medical debt of more than $10,000.

Inflexibility of the Medical Collection Industry 

One of the reasons that so many are forced into these "Medical Bankruptcies," isn't due to the amount as much as the fact that the medical collection agency is rigid and unwilling to work out a reasonable payment plan with people.  The doctors, hospitals and medical collection agencies would rather rush to court and file a small claims lawsuit rather than make reasonable arrangements with the debtor.  This has caused the entire small claims court system to be clogged with medical lawsuits. And this trend will continue as medical practitioners turn their delinquent accounts over to collection agencies.  Often medical related businesses would rather sue for $100 rather than writing the debt off.

Options for Medical Bill Debtors

There is no way to tell someone how to file for medical bankruptcy because it simply doesn't exist.  What a person who finds themselves facing prosecution and unable to pay their bills, medical or otherwise, can do is one of two possible options.

They can file for Chapter 7 bankruptcy.  This option will wipe out most if not all unsecured debt, of which medical debt is part.  The only drawback to this solution is that after filing bankruptcy, a person cannot file for another bankruptcy for six years.  If they should get sick or sustain an injury during that time and they still don't have the money to pay for their treatment, they could very well have their wages garnished and judgments and liens levied against them in order to pay medical debts.

The other option that would work for those who have severely limited income and most of their property is considered exempt, is to simply wait to be sued by the creditor.  Once in court, the debtor could have his income and other property declared exempt from the creditor and avoid the need to file for bankruptcy.  This is particularly the case with those on fixed incomes, such as social security.

How to Protect What You Have

If you are sued, when you arrive at court immediately tell the judge that you would like to have your income and property declared legally exempt.  Do not sign or agree to anything that waives your right to property exemptions. But remember that it is your responsibility to inform the judge regarding what property you wish to have declared exempt; he or she will not make this offer to you.

More than likely you will have to agree to some sort of repayment plan.  Do not agree to one you cannot afford.  If $20 a month is all you can afford, say so.  You can prove this to the judge by bringing in as many personal financial records that you can that represent your living expenses: utility bills, mortgage payments, grocery receipts, etc.

Each state has its own rules regarding how much income you must make per week in order for the creditors to be able to seize any of it.  Caps on wages and how much can be garnished are provided by the state.  Be sure to find out what the rules are for your state 

Quite often states allow government benefits to be exempted, including such benefits as social security, unemployment compensation, and welfare.  Pensions, retirement plans, child support, life insurance, worker's compensation, quite often all these too will be exempt.  You may even be surprised to discover that a homestead exemption will keep your house safe from the creditors, as well as cash in the bank, your car and other assets.

Speak with a Bankruptcy Attorney

If you are facing a difficult financial problem due to medical debts, you should contact a bankruptcy attorney immediately.  He can explain the exemptions and suggest the best process that will protect you in your given situation.