Medical bankruptcy is a highly unfortunate reality of the American healthcare system. Bankruptcy for medical reasons is the number one reason why people file for bankruptcy, and often times it’s not the fault of the debtor.
People who have serious medical issues, cannot work, and end up with large medical bills could be financially ruined due to something completely outside of their control.
Despite this, it is possible to recover from medical bankruptcy.
Choose The Right Type of Bankruptcy
If you’re able to work and simply need a plan to pay back exorbitant amounts of medical bills, Chapter 13 will be for you. It will also allow the hospital or doctor’s office to collect more of what you owe, leading to a better relationship with them.
However, this does not release you of your responsibility to pay back your debts. You will still owe, and you will still have to make payments.
If you’re completely unable to work due to your medical condition, and you’re left on disability, you’ll want to choose Chapter 7 bankruptcy. This bankruptcy releases all your debts as well as your responsibility for paying them.
However, this black mark lasts for ten years, rather than seven, and the effects on your credit will be severe. It could also threaten your ability to get medical services from your current doctor. (Emergency services must be provided to you regardless, though.)
All in all, discuss this with your bankruptcy lawyer and have them help you decide which option is right for you.
Know That Bankruptcy Is Not The End
During a bankruptcy, your assets will be liquidated to pay off your debts and you’ll have a black mark on your credit report for seven years. However, it only lasts for seven years: after which it’s gone for good.
Bankruptcy also means ALL your debts are discharged (except for debts that are exempt, such as student loans). If you have other debt, you won’t be paying that back either: it will be discharged as well.
Start With Secured Credit Cards & Build Credit From There
Ironically, bad credit IS BETTER than no credit. It’s actually an easier time for someone who has a credit history with a bankruptcy on it to get credit, than someone who is just beginning their credit history. If you remember your first credit card, you’ll remember how low the limit was, and how high the interest rates were!
If you’ve got a bankruptcy, it’s time to start rebuilding slowly. Open up a secured credit card once you have available cash.
Keep an eye on your credit report and your credit score regularly. You’ll slowly be able to get more and more credit, and by the time your bankruptcy gets removed from your credit report, you’ll have a good credit score again.
Want to learn how to continue building up your credit over time? Check out our article on rebuilding after bankruptcy!
- The type of bankruptcy matters a lot when it comes to your credit and your payment obligations.
- Bankruptcy isn’t the end, but it does mean you have to get rid of your existing assets in many cases.
- Build credit over time by starting with secured credit cards.
How To Recover From Medical Bankruptcy
Medical bankruptcy is a highly unfortunate reality of the American healthcare system. Bankruptcy for medical reasons is the number one reason.
Jason M. Kaplan, Esq.
The Credit Pros