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Cleveland TN Bankruptcy Law Blog

Hospitals' collection actions against patients are on the rise

An increasing number of Tennessee residents are finding themselves caught between unpaid medical bills and the prospect of bankruptcy. Recent studies indicate that hospitals are going to court to collect unpaid medical bills in rapidly increasing numbers. The hospitals say they are suing only ex-patients who have the financial means to pay the bills, but researchers disagree.

One of the biggest hospital chains to resort to litigation is Ballad Health, a company with clinics and hospitals in Virginia and Tennessee. Ballad filed more than 6,700 collection actions against former patients in 2018. Since 2009, Ballad hospitals have filed 44,000 lawsuits seeking to collect unpaid fees and expenses. In most such cases, the hospitals prevailed because the patients either failed to appear for the hearing or were unrepresented by a lawyer.

What is a voidable preference in bankruptcy?

For most residents and small businesses in Eastern Tennessee, the bankruptcy process appears to deal solely with the debts owed by the petitioner. One class of debts, however, focuses on payments made to creditors before the bankruptcy proceeding begins. These debts are called "voidable preferences" for the very good reason that certain payments to creditors may be voided by the bankruptcy trustee.

Most debtors assume that they can pay their creditors in any order they choose. The bankruptcy system imposes a different rule: the bankruptcy debtor cannot treat similarly situated creditors in different ways. In other words, the debtor may not accord some creditors preferential treatment before and during the bankruptcy proceeding.

How a Chapter 13 bankruptcy can save the house

Perhaps the most common question asked by Tennessee residents who are contemplating filing a bankruptcy petition is whether they will lose their home in the bankruptcy proceeding. The question does not have a simple answer. The legal and financial effects of a bankruptcy depend upon the type of petition that is filed and the financial situation of the debtor.

The proceeding that offers the most certain opportunity to maintain possession and ownership of the family home is a Chapter 13 bankruptcy, often referred to as a wage earner's bankruptcy. In a Chapter 13 bankruptcy, the debtor provides a complete list of all debts, including home loans, auto loans, credit card debts, and all other obligations. Under the supervision of the United States bankruptcy trustee, the debtor then negotiates new terms for outstanding loans. The plan must specify a method for paying the loans or at least bringing them current within three to five years.

Understanding the means test in Tennessee

Most Tennessee residents who are considering filing a bankruptcy petition realize that they must decide between filing under Chapter 7 or Chapter 13. Prospective filers also understand that most, if not all, debts can be discharged in a Chapter 7 proceeding and that a Chapter 13 proceeding can only help the debtor renegotiate the terms of existing debts to allow more time to pay or, in some cases, to reduce the balance due. Most debtors prefer Chapter 7 for obvious reasons, but Chapter 7 does not provide relief for every bankruptcy filer. In order to be eligible for Chapter 7 and the total discharge of most obligations, a debtor must first pass what is called the "means test."

The means test is intended to prevent persons with significant annual incomes from discharging their debts in a Chapter 7 proceeding. In order to qualify for relief under Chapter 7, a debtor must demonstrate that his or her annual income is less than the Tennessee median for a household of comparable size. The median income is determined by averaging the debtor's monthly income over the last six calendar months. Once determined, a person's monthly income is multiplied by 12 to determine his or her annual median income. As of this writing, the Tennessee median income for a one-member household is $39,759, for a two-member household the median income is $48,053.00. For a 3-member household, the median income is $56,042.00. The annual limit increases by slightly less than 10% per household size before capping at $111,405.00 for a 10-member household.

Tennessee truck collision causes firm to file Chapter 7 petition

One of the most notable features of the civil court system in the United States is the increasing frequency of so-called "mass tort litigation." One of the most notable mass tort lawsuits has been the claims against miners and users of asbestos, but the mass tort device has been used in many other instances, not all of which have been as big as the universe of asbestos claims filed since the early 1960's. Sometimes, the only defense is the filing of a bankruptcy petition to both stop the lawsuit from going forward and also to liquidate the defendant's assets before judgment can be entered.

This strategy has recently been employed by the owner of a truck that was involved in an especially tragic collision on I-75 near Chattanooga. The accident occurred in June 2015 when a truck operated by Cool Running Express crashed into a work zone and killed six people, including two children. Four others were injured in the 18-vehicle crash. The driver was convicted of various felonies and is now serving a 55-year sentence without the possibility of parole.

What debts cannot be discharged in a personal bankruptcy?

As most residents of Eastern Tennessee realize, the bankruptcy code is intended to give people a fresh financial start by providing a remedy that relieves them of the burden to pay debts that they can no long afford. While both a Chapter 7 and a Chapter 13 bankruptcy proceeding may provide this remedy, a prospective bankruptcy filer should be aware that some debts cannot be discharged in a bankruptcy proceeding.

Repayment of certain debts has been deemed too important to the general public welfare to be discharged in a bankruptcy proceeding. Perhaps the most important of such exemptions is bank child support, alimony payments and other debts related to family obligations. For this reason, none of these debts can be discharged in either a Chapter 13 or Chapter 7 proceeding. A second category of debt that cannot be discharged is damages arising from either a personal injury or a death caused by the debtor while driving under the influence of alcohol. Student loans cannot be discharged unless the debtor can show that denial of discharge would cause an undue hardship. Generally speaking, income taxes for the last three years and all other tax debts cannot be discharge.

Retiring a mortgage before retirement

Retirement may be the time to payoff debt, such as a mortgage, that can deplete savings, income, and other assets. Ending these monthly mortgage payments during retirement can help prevent bankruptcy and assure that there is sufficient retirement savings and income.

In the past, only 10 percent of households with a person at least 70 years old had a mortgage. Now, that number is almost 40 percent. These households had total debt of $1.16 trillion, which was comprised of $820 billion in mortgage debt. Ten years ago, this mortgage debt was $570 billion. Today, households with a 60 to 69-year-old have debt of $2.16 trillion, three-quarter of which is mortgage debt.

Bankruptcy and credit reports

Credit reports play a large role when it comes to an individual's ability to obtain credit cards and loans. Unfortunately, bankruptcy can affect a credit report or score in a way that reduces the chances of obtaining this financing. But there are ways to minimize its impact.

A bankruptcy filing generally remain on credit reports for up to 10 years before they are removed. Its impact depends on the type of bankruptcy, however.

Can employers discriminate against employees based on bankruptcy?

Many people who are feeling overwhelmed by their debt are reluctant to get the legal help they need because they fear the stigma associated with bankruptcy. This can be a mistake, and is largely based on a misconception.

It's true that filing for bankruptcy protection can hurt your credit score. If you file for Chapter 7, it will stay on your credit report for 10 years. A filing for Chapter 13 will stay on your credit report for seven years. However, filing for bankruptcy gives you a new start to begin rebuilding your credit score.

Property exemptions can make a big difference

Many Tennessee residents feel overwhelmed by their mortgage, credit card balance, medical bills and other forms of debt, but they are reluctant to seek out the quickest, most effective way of returning to financial health. They fear that filing for protection under Chapter 7 of the U.S. Bankruptcy Code will mean losing everything they own. That is a misconception.

In fact, Tennessee law provides many types of property are exempt from personal bankruptcy laws. Before we explain further, let's begin with a little background information.

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