In the recent years, United States has witnessed a significant rise in bankruptcy filing from its constituents and among them arising from medical bankruptcy. Actually, medical bankruptcy is not a technical or official bankruptcy terminology, rather it points out to one of the reasons why people file for bankruptcy, which is due to medical bills. With the 2008 economic recession and the controversial health care system, many people would suspect that the increased bankruptcy may be brought about by these two factors. But whatever the reason may be, bottom line is that the burden of piling debts and compounding interests on loans are weighing down on people and in most cases are too much to handle that filing for bankruptcy seems to be the easiest way out of it all.

In 2005, the bankruptcy law in the United States was revamped to impose stringent rules on who are qualified to apply for medical bankruptcy. Prior to the amendment, the number of bankruptcy filers under Chapter 7 was staggering due to more lenient rules. Chapter 7 is supposed to be a ‘fresh start’ for those who badly need one, but many would attempt to file even if they were still capable of repaying their debts. In many circumstances, debts arising from medical bills were not a bit crashing that bankruptcy filers could have opted for a debt payment plan. Medical bankruptcy statistics showed that 20% filed for bankruptcy with less than $1000 in debt, 40% of the filers had medical debt of less than $5000, and 13% filed for medical debts over ten thousand dollars. Or perhaps, people owing medical debt file bankruptcy instead because of the inflexible methods of hospitals, doctors and other medical collection agencies in collecting medical arrears. Still, this bankruptcy abuse prompted the implementation of the new rules which encompass all kinds of bankruptcies.

There are various reasons why people file for medical bankruptcy. A serious illness, lingering sickness or disability that you have or of a family member which require long stays in a hospital bed, expensive medicines, regular consultations with high rates and numerous unaffordable medical tests could drive minimum wage earners on the brink of bankruptcy, particularly those without insurance coverage or the underinsured. A day or two in the hospital could mean loss of income to others which makes bill payment even more difficult. However, medical bills bankruptcy does not limit to those without coverage. There are, in fact, many cases where insured individuals file for bankruptcy especially when the sickness or the treatment needed are not covered by insurance, or when treatments are too expensive for the insurance to cover everything. As a result, out-of-pocket medical expenses blow out of proportion, bankrupting them. Or, previously insured individuals lose their insurance coverage due to increasing layoff cases that in the event of a life or death surgery or treatment, the huge medical bill attached to it remains unpaid. It is no question that unpaid medical bills are one of the contributing factors to filing bankruptcy in America. Many would exhaust themselves in the effort to pay off all medical expenses until reaching a point that nothing is left.

Even with more reasons to apply for bankruptcy, the stricter laws governing bankruptcy makes it harder for filers to do so. If you are planning to file for medical bankruptcy, it is important that you understand new medical bankruptcy rules before jumping into the pit of bankruptcy. Try to sit and talk with a qualified and reliable bankruptcy attorney so that you can transparently show him how difficult your current financial situation is with all the unpaid medical bills piling up. Your bankruptcy attorney will help you understand the new rules and show you the best option for you take. There are attorneys that offer free consultations so that you do not have to pay a dime.

The overwhelming number of people who filed for Chapter 7 bankruptcy for whatever reason be it medical expenses, mounting credit card bills or bad mortgages prior to 2005, lead lawmakers to implement new bankruptcy rules. These new rules which generally speak of Chapter 7 bankruptcy made the process of filing for bankruptcy more complex, which makes it even harder for petitioners to get approved for bankruptcy status including medical bankruptcy. Here, income criteria will determine which debtor is qualified to file under Chapter 7. Under the income guidelines, if a debtor’s income equals or falls below the state’s median income, he is qualified to file under Chapter 7. Median income may vary from state to state though. If the debtor’s income happens to be more than the state’s median, the bankruptcy court will require the debtor to take a means test to determine his eligibility. Here the debtor’s income and debt for the past six months will be assessed. If it is established that there is enough income left for him to pay off creditors after deducting basic necessities such as utilities, food and rent, then he fails to qualify for Chapter 7. However, he may apply for Chapter 13 bankruptcy instead which require setting up debt repayment plans. The purpose of the means test is to prevent debtors who still have the ability to repay creditors from taking the easy way out of discharging their debts.

The process does not end there though. If the debtor qualifies for Chapter 7 medical bankruptcy, before he can officially file for bankruptcy, he is required to attend mandatory credit counseling that is government approved. The counseling will help him decide whether or not it is necessary for him to file for medical bankruptcy or give him ideas or other avenues of how to get rid of his medical debts. After completion of credit counseling, the debtor can then file for bankruptcy due to medical debts to the bankruptcy court. He is required to present documentations to support his appeal such as income statement, debt and expense data, creditor holdings of secured and unsecured loans and list of exempt properties. A bankruptcy attorney will guide the debtor through this whole process, especially on the necessary information needed by the court. After successfully filing all the necessary paperwork, the debtor is again required to attend a creditor’s meeting presided by a trustee. Soon after, the bankruptcy court will hold a discharge hearing where the debtor’s unsecured debts which include unpaid medical bills and credit card debts are discharged, giving him a ‘fresh start’.

Truth be told, filing for medical bankruptcy is a difficult decision for most families. Unlike those who try to beat the system and escape their debts, most of the filers are actually those who feel there is no other way. Because of unavoidable illness, expensive health care, minimal source of income, or no insurance or underinsured, medical bills and bankruptcy seem to go hand in hand. But it shouldn’t be, at least, until all possible options are exhausted. One way would be to negotiate with the medical collector and ask for a more lenient term of payment. Do not fear negotiating with medical collectors. They are still human; they are bound to listen rationally. Truth is, according to Kimberlin-Murphy, a medical collector, once hospitals forward their unpaid debts to collection agencies it is guaranteed they will lose much of the payment. But most hospitals would prefer being paid slowly and continuously over a very long period of time rather than lose 50% of the payment. Be transparent to attending doctors. Lay everything down, and tell them honestly how bleak your current finances are and how badly their services are needed. Now, some may be forgiving and cut medical debts to a more affordable price. But there’s probably very few of them exist, yet it is still an idea worth a try. Also, there are a number of medical debt settlement companies that can give aid during medical debt crisis. However, make sure that the debt settlement company you end up choosing is a legitimate one. You can do by asking for recommendations from trusted sources or by thoroughly researching different companies.

Filing for bankruptcy costs money, and some are so dead broke that they have no resources to do so. That is why many people also find bankruptcy a realistic option. But when you really feel there are no other viable options left but bankruptcy, it is important that you remember that although medical bankruptcy will eliminate if not significantly decrease existing debts, your credit record will be tarnished and will remain that way for a very long time. You cannot apply for credit for at least ten years. So after gaining ground from your fresh start and you are planning to buy a house or a car, you cannot do so should a loan is needed. The cost of bankruptcy goes from beyond than just your out-of-pocket expenses especially when Chapter 7 is the route you choose. You could potentially lose properties important to you for liquidation which could hurt more than what you owed. Unless you are ready to take the risk, medical bankruptcy should be your last resort.