Medical Debts and Bankruptcy
Recovering from a major illness or injury often means recovery financially from mounting medical debt . Even individuals with health insurance find that medical debt is a leading cause for considering bankruptcy. Unfortunately, many debtors consider bankruptcy long after they have substantially whittled away at their limited resources and assets.
Below are a few ways that medical debt can harm finances and some tips on what debtors can do to limit the damage to their assets:
Nondischargeable Credit Card Debt
One of the first things some debtors do instead of filing bankruptcy is charge their medical debts to a credit card. Sometimes hospitals and individual doctors offer financial incentives for paying off a medical bill immediately, so instead of waiting debtors charge it to their credit card, even if they know they can't pay it off. This can cause a problem once they file bankruptcy because once the creditor realizes that the debtor had no intentions of paying off the medical debt charge, they will request that the bankruptcy trustee make the debt nondischargeable.
This means that not only will the bankruptcy debtor remain stuck with a debt that would have otherwise been discharged in bankruptcy; they will pay extraordinarily high interest rates on it. To avoid this, debtors should forgo charging any medical debt to their credit card unless they know for sure that they can pay it off.
Ignoring Medical Debts
While it's true that medical debts generally don't end up on your credit report, if you ignore the debt it can end up on the desk of a third-party debt collector. This means that the medical debt which would have otherwise remained interest free might begin to incur penalties and other fees tacked on by the third-party debt collector. This process can make a medical debt balloon quickly into a much larger debt.
If a debtor knows that they cannot pay their medical debt, they should immediately contact the hospital and try to negotiate a settlement, or forbearance until their financial situation improves. If they know that their financial situation won't improve in the near future, they need to speak with a bankruptcy attorney about their bankruptcy options. At least if they file bankruptcy earlier in the collections process, they can avoid causing the bills to inflate.
Using Debt Settlement Companies
While it's completely acceptable to attempt to settle medical debt on your own, especially if you have no other debt issues, using a debt settlement company to do so might actually create more expense. Debt settlement companies promise to help debtors pay pennies on the dollar but they are often unable to deliver. Along with heavy fees charged to the debtor, debt settlement companies don't have the power of a bankruptcy court to force a creditor to settle the debt. Debt settlement abuses have become so prevalent that some creditors are refusing to deal with debt settlement companies.