When facing overwhelming medical debt, bankruptcy may be a necessary option to regain financial stability. Deciding between Chapter 7 and Chapter 13 bankruptcy is a crucial step, and understanding how medical records factor into each type can help you make informed decisions. Medical records serve as critical evidence for substantiating debts, demonstrating financial hardship, and navigating the legal process effectively.
This article explores the differences between Chapter 7 and Chapter 13 bankruptcy, the role of medical records in each, and actionable strategies to manage medical debt within these frameworks.
Introduction
Medical Debt and Bankruptcy in the U.S.
Medical expenses are a leading cause of personal bankruptcy in the United States. According to the American Journal of Public Health:
- 66.5% of bankruptcies cite medical issues as a contributing factor.
- High deductibles, denied claims, and out-of-network bills are common culprits.
Why Medical Records Matter
Medical records and bills play a pivotal role in bankruptcy cases by:
- Validating Debts: Proving the necessity of healthcare expenses.
- Demonstrating Financial Hardship: Highlighting the impact of medical debt on your overall financial situation.
- Supporting Discharge of Debts: Providing evidence to justify the inclusion of medical bills in your bankruptcy filing.
Overview of Chapter 7 and Chapter 13 Bankruptcy
What Is Chapter 7 Bankruptcy?
Chapter 7, also known as liquidation bankruptcy, is designed for individuals who cannot repay their debts. It involves selling non-exempt assets to pay creditors, with the remaining eligible debts discharged.
Key Features:
- Most unsecured debts, including medical bills, are discharged.
- No repayment plan required.
- Requires passing the means test, which assesses income levels relative to state averages.
What Is Chapter 13 Bankruptcy?
Chapter 13, or reorganization bankruptcy, allows individuals with regular income to create a repayment plan to settle debts over 3–5 years.
Key Features:
- Medical debt is included in the repayment plan.
- Assets are not liquidated.
- Requires consistent income to fulfill repayment obligations.
The Role of Medical Records in Chapter 7 Bankruptcy
Substantiating Medical Debt
Medical records are essential for proving that healthcare expenses are legitimate and necessary. Examples include:
- Itemized Bills: From hospitals, specialists, or labs.
- Treatment Notes: Demonstrating the necessity of procedures or medications.
- Insurance Claims: Providing evidence of denied coverage or out-of-pocket expenses.
The Means Test and Medical Records
Passing the means test is a requirement for Chapter 7 eligibility. Medical records and bills can help:
- Demonstrate Financial Hardship: Show how medical expenses exceed your disposable income.
- Exclude Medical Costs from Income Calculations: Deduct ongoing medical expenses from your income to qualify for Chapter 7.
Asset Protection
While Chapter 7 involves liquidating non-exempt assets, medical records can support claims for exemptions, such as:
- Protecting funds in a health savings account (HSA).
- Justifying the retention of necessary medical equipment.
The Role of Medical Records in Chapter 13 Bankruptcy
Including Medical Debt in the Repayment Plan
Medical bills are categorized as unsecured debt in Chapter 13, which means they are often paid only after secured and priority debts (e.g., mortgages, taxes). Medical records can:
- Support Payment Amounts: Ensure accurate inclusion of medical bills in the repayment plan.
- Prove Necessity: Justify high medical expenses to secure favorable repayment terms.
Adjusting Repayment Plans for Ongoing Medical Needs
If medical expenses continue during the repayment period, records can:
- Support a request to modify the repayment plan.
- Demonstrate a change in financial circumstances due to ongoing treatment.
Protecting Assets
Unlike Chapter 7, Chapter 13 does not require liquidation of assets. However, medical records can still:
- Substantiate Asset Value: Prove the necessity of retaining medical equipment or savings allocated for healthcare.
Key Differences in Handling Medical Debt: Chapter 7 vs. Chapter 13
| Aspect | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
| Discharge of Medical Debt | Fully discharged without repayment. | Included in a 3–5 year repayment plan. |
| Income Requirements | Must pass means test. | Requires regular income. |
| Asset Liquidation | Non-exempt assets may be sold. | Assets are protected. |
| Ongoing Medical Costs | Not included post-filing. | Can adjust repayment plan for new expenses. |
| Role of Medical Records | Validate debts and justify financial hardship. | Prove necessity of expenses and support modifications. |
Steps to Use Medical Records Effectively in Bankruptcy
Gather Necessary Documentation
- Itemized Bills: Include charges from all healthcare providers.
- Insurance Statements: Detail denied claims or uncovered expenses.
- Payment History: Show attempts to pay off debts.
- Treatment Plans: Provide evidence of ongoing or critical care.
Organize Records for Easy Access
- Categorize by Provider: Group bills and records by healthcare facility or physician.
- Highlight Key Information: Mark high-cost treatments or denied claims for quick reference.
- Create Digital Backups: Use secure cloud storage for easy access and sharing.
Work with a Bankruptcy Attorney
An experienced attorney can:
- Ensure that all medical debts and related records are included in your filing.
- Help redact unnecessary details to protect your privacy.
- Guide you through the means test or repayment plan adjustments.
Challenges and Solutions
| Challenge | Solution |
| Missing Records | Request copies of all medical records and bills from providers well in advance of filing. |
| Privacy Concerns | Redact non-essential information and petition the court to seal highly sensitive records. |
| Ongoing Medical Expenses | Work with your attorney to request a plan modification supported by updated medical records. |
Conclusion
Choosing between Chapter 7 and Chapter 13 bankruptcy for medical debt depends on your financial situation, income stability, and long-term goals. Regardless of which path you take, medical records are a crucial tool for substantiating claims, demonstrating hardship, and navigating the bankruptcy process effectively. By gathering and organizing your medical documentation, working with an attorney, and understanding the unique requirements of each bankruptcy type, you can take control of your financial future and find relief from the burden of medical debt.