Medical Records and Bankruptcy

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What is Bankruptcy?

Bankruptcy is a legal process in which a person who is incapable of repaying debts seeks legal relief from some or all of their debts.

Under the U.S. Constitution, you can relieve parts or all of your debts if you can no longer meet obligations to creditors and lenders. Proof that you cannot pay back these debts is required and in the case of a Chapter 13 bankruptcy, a repayment plan is also required. Bankruptcy is also likely to involve the court seizure and liquidation of some or all liquid and non-essential assets to repay creditors.

There are two major types of personal bankruptcy in the United States. Chapter 7 bankruptcy allows debtors to discharge part or all of their debt. Chapter 13 bankruptcy instead has debtors repaying part or all of the debt based on a payment plan.

What is Chapter 7 Bankruptcy?

With Chapter 7 bankruptcy, you can have parts or all of your debts discharged. This would happen after your assets are liquidated used to repay a portion of the debt.

What Are Liquid Assets?

These are assets that can quickly be converted into cash. For example, checking and savings accounts. Some of these liquid assets must be turned over to the courts and distributed among your creditors as partial repayment of the owed debt.

Assets that can’t be used to repay debts in bankruptcy are called exempt assets. Each state has laws on which liquid assets are exempt and non-exempt for bankruptcy. General examples of exempt assets may be a house, retirement funds or professional tools while examples of non-exempt assets may be jewelry, sports cars or flatscreen TVs. It is still advisable to check your state and local laws for what is considered seizable and exempt from seizure.

After non-exempt liquid assets are distributed to creditors, the remaining debt is discharged. Then you are no longer liable for any of the debt discharged. Then neither creditors or third-party collectors can attempt collection on these debts.

How Do I Qualify?

Qualifying for Chapter 7, requires passing a means test proving that your income is less than the median income, taking into account your family size in your state. Those who fail the means test, will not be allowed to file Chapter 7 and must instead file Chapter 13.

Additionally, after the means test, individuals must receive credit counseling from an approved credit counseling agency. These approved credit counseling agencies can be found on the website of the U.S. Trustee Program.

Should I file for Chapter 7 Bankruptcy?

Filing for a Chapter 7 bankruptcy, or any bankruptcy for that matter, is a serious matter that does hold a lot of questions. How much debt do I have to accumulate before I qualify? What will this do to my credit score? Should filing for bankruptcy only take place at a certain time? There aren’t exact answers to these questions and they could easily vary depending on your circumstances. However, a good rule of thumb is that you should at least consider filing if your debt is continuously accumulating/your not able to pay off monthly cycles and your income is low enough to qualify for a Chapter 7 bankruptcy.

What is a Chapter 13 Bankruptcy?

With Chapter 13 bankruptcy, you must repay a portion or all of the debt through a 3-5 year repayment plan. When making the personal bankruptcy filing, you will submit the repayment plan to the court. After submitting this plan, you should begin making payments to the court. The court will then manage paying the creditors. This step is required even if the plan hasn’t yet been approved.

There will then be a hearing to approve your payment plan, which might take a few weeks. Creditors are allowed to object to the payment amounts. However, the judge has the final say. After the plan has been approved, you will continue making the payments to the court. Once the payment plan is completed, the remaining debt is discharged, and you are no longer liable for the remainder.

If you are a farmer or fisherman, you may want to consider filing for Chapter 12 bankruptcy. Chapter 12 bankruptcy is similar to Chapter 13 but can provide additional benefits to farmers and fishers in certain circumstances.

Should I File for Chapter 13 Bankruptcy?

You might decide on Chapter 13 instead of Chapter 7 if your debt consists of secured loans (like car loans), that you wish to continue paying. Chapter 7 bankruptcy requires you give up some liquid assets, but if you want to retain some of your liquid assets Chapter 13 could be a better option. Also if your income is above the median (for your state and family size), you won’t be able to file Chapter 7 bankruptcy.

In filing Chapter 13, according to the U.S. Bankruptcy Code, you may not have more than $922,975 secured debt and $307,675 unsecured debt. Unsecured debt includes things like credit card debt and medical loans.

As in Chapter 7 bankruptcy, you must use an approved credit counseling agency to receive credit counseling from.

Filing for Bankruptcy

FIling personal bankruptcy can be a complex process and can have ramifications for your credit score. It is important to seek advice from a bankruptcy attorney before filing. It is vital to ensure your paperwork is filed accurately and completely.

Certain types of loans and expenses can be more difficult to discharge in bankruptcy, such as student loans and child support payments, depending on your state’s laws. 

Note also that things such as federal student loans, alimony, child support, taxes, debts from injuries in a DUI, fraudulently obtained loans, and certain debts incurred within 6 months prior to the filing cannot be discharged. If your debt is with a co-signer, it may be difficult to discharge as this would mean that the co-signer would be required to pay the full debt.