Medical bills can mount quickly when someone is involved in a serious accident or develops a life-threatening illness and lacks health insurance. The size of these debts can force a person to seek bankruptcy protection to prevent medical creditors from seeking a court judgment to seize assets like a home.
Unsecured Medical Debt
Medical bills are a form of unsecured debt. This means your creditor, in this case a hospital or doctor's office, has no collateral to seize if you do not pay off the debt. In most circumstances, your creditor cannot move to claim your assets such as a home or other piece of real property as a means of recouping your medical debt without an action by the court. Even though your assets may be safe, your creditor can still report your delinquency to all three major credit reporting bureaus, which can make it difficult for you to secure new lines of credit.
Judgments for Payment
A creditor may sue you in civil court in an attempt to garner a judgment against you to force you to pay off your medical debt. A court may choose to garnish your wages or bring your property under the control of the court. Under these circumstances you maybe forced to liquidate your assets such as a home or other piece of real property under supervision of the court. The proceeds from the sale of your property would then be seized by the court and used to pay off your judgment. The difference from the liquidation is returned to you.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy because it empowers the court to sell off your assets to pay your unsecured debts like medical bills and credit cards. If you file Chapter 7 bankruptcy due to insurmountable medical bills the court may liquidate the equity in your home which you are unable to protect through bankruptcy exemption laws. Each state allows different exemption amounts for a home in bankruptcy, so check with your local bankruptcy court before filing.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is personal debt restructuring. This form of bankruptcy allows you to submit to the court a repayment plan which is designed to pay down your debts over three to five years. Under the terms of this bankruptcy chapter, your unsecured medical debts and other debts are paid through a court-appointed trustee who distributes your debt payments to creditors. You are allowed to keep ssets like your home in Chapter 13 bankruptcy as long as you make timely payments in accordance with your repayment plan.
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