We all need money to live. People need to earn money to pay for their basic daily needs: food, clothes, shelter. But in this economy, it’s becoming harder to stay financially stable. A lot of us have even reached the point of bankruptcy. One major cause for bankruptcy for Americans today is their medical bills. When people are incapable of paying their medical bills due to serious illnesses, filing medical bankruptcy becomes a viable escape route.

What is medical bankruptcy?

The term “medical bankruptcy” does not really exist. Bankruptcy does. The term was just coined to identify the particular cause of your bankruptcy, like your medical debt. Attorneys do not even use the term medical bankruptcy because filing for bankruptcy does not only involve medical debts but all your debts.

In layman’s term, medical bankruptcy is simply a declaration that an individual is incapable of paying his or her debts, which are mostly medical bills.

What are the medical bankruptcy rules?

There is no formal declaration of medical bankruptcy in any state in the US. Medical bills, like all debt, are subjected to Chapter 7 or Chapter 13 bankruptcy laws. Under Chapter 7, the filer’s medical debts and all other debts from creditors will be wiped out. In short, the filer will be free from any debts. On the other hand, Chapter 13 will organize a repayment plan for a certain period of time. Under this law, the filer can have ample time to pay a portion of his debts or pay them in full while being protected from any lawsuits and asset losses due to those debts.

Also in chapter 7, you will be required to present your federal income tax return and all your assets and liabilities to prove that you are incapable of paying your debts at all. Otherwise, you will be subjected to Chapter 13 bankruptcy.

How to file for medical bankruptcy?

Filing for medical bankruptcy is a lengthy and tedious process. If you want complete details, it’s best to consult a bankruptcy lawyer. But basically, in order to be eligible to file for bankruptcy, you’ll need complete statements of your assets and liabilities and your federal income tax returns. The bankruptcy court will determine based on your papers and presented evidence on whether you will be subjected to Chapter 7 or Chapter 13 bankruptcy laws. After which, you may then get the relief from your bankruptcy nightmare.

However, filing medical bankruptcy has a downside. When a person files medical bankruptcy, it does remain on his or her credit report for a certain period of time. This it may take years before that person could get reasonable credit from financial institutions.

The number of medical bankruptcies filed has drastically risen in the past decade. What’s troublesome is that most the people who file for medical bankruptcy are those who have medical insurance. Once seen as an escape route, medical bankruptcy is sometimes the only option left for those of us heavily affected by the recession. But it shouldn’t be the only option left. There are ways to avoid or postpone filing medical bankruptcy. All you need is to be armed with information and be determined to stay afloat and survive this crisis.