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Understanding medical bankruptcy

Bankruptcy holds many mysteries for people who have never experienced the process. One of the most common myths among residents of Bradley County is so-called "medical bankruptcy." All bankruptcies are governed by the United States Bankruptcy Code, and many people may be surprised to learn that there is no such thing as a "medical bankruptcy." Nevertheless, the bankruptcy code can help people who are struggling with heavy medical bills.

The degree of assistance in dealing with medical bills (and all other unsecured indebtedness) offered by a bankruptcy filing depends upon whether the debtor can qualify for Chapter 7 or must file under Chapter 13. A Chapter 7 bankruptcy can eliminate many unsecured debts, including medical bills, but the debtor must pass a "means" test, that is, no one can file a petition for discharge of debts under Chapter 7 unless their monthly income is lower than the median monthly income for residents of Tennessee. If a person qualifies for Chapter 7, all unsecured debts owed by that person, including medical debts, will be discharged at the conclusion of the proceeding.

Under Chapter 13, the debtor must prepare a plan of reorganization showing how the debtor will pay all existing indebtedness, including medical bills, within three to five years. If the debtor sticks to the plan and makes payments when required, the remaining obligations will be discharged at the end of the reorganization period if the bankruptcy judge approves the plan. A significant advantage for all debtors, regardless of whether they elect Chapter 7 or Chapter 13, is the automatic stay that goes into effect when the petition is filed. The automatic stay operates as a court order to all creditors of the debtor ordering them to cease all collection actions, including lawsuits, dunning letters and harassing phone calls.

Anyone who is struggling under a mountain of debt resulting from unpaid medical bills may wish to consult an experienced bankruptcy lawyer for advice on choosing between Chapter 7 and Chapter 13 and assistance in compiling the necessary information to support the bankruptcy petition.

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