- Kamini Fox
Can you Lose Your Home Due to Medical Debt?
The COVID-19 pandemic has been with us for over a year now. We have heard stories of hospitals being filled to capacity, and people who are in the hospital due to COVID can spend weeks in the hospital and even in intensive care. Obviously, COVID is not the only reason a person needs to spend time in the hospital. For many people, even with insurance, it is a very common occurrence that your insurance company will not cover specific procedures, tests, or doctors based on what is covered and what doctors or hospitals are in-network. If some doctors or procedures are not covered, you will likely receive a bill that is far beyond your ability to pay it off without help. For people who do not have insurance, medical bills can easily climb into the 10s of thousands and even the 100s of thousands of dollars. For long-term care for serious conditions, it’s not unheard of for medical bills to be over $1 million.
Medical Debt is Unsecured Debt
Secured debt is when a loan is backed by collateral to reduce the lender’s risk associated with loaning a large amount of money. The most common secured debt is a mortgage. Car loans are also secured. Debt such as credit cards and medical bills are unsecured. There are no assets that the lender can put a lien on and threaten to foreclose or repossess in the case of missed payments.
Questions to ask yourself if you are considering filing for bankruptcy due to medical bills
Filing for bankruptcy is a big decision with many pros and cons. Your credit score will definitely be impacted for a period of time, though it is possible to fix your credit. We discussed this in a recent blog post here.
You have to look at your medical bills alongside the other debt you have, even if you have successfully managed that debt. You have to review your outstanding debt and be completely honest with yourself.
How much medical debt do you have, and do you think it will take a year or more to pay it off even with monthly installments?
Even if you have handled your debt before your medical bills, adding this monthly payment makes it harder to pay monthly bills like your mortgage, car loans, or outstanding credit card debt?
How much money do you earn? Chapter 7 bankruptcy is not available if you make over a certain amount. This could impact your choices and your overall decision.
What exemptions are available to you? There are exemptions for your primary home, car, and other assets such as family heirlooms and work-related “tools of the trade.” You will not want to put yourself in a position to lose any assets unnecessarily, especially if you aren’t currently behind on your mortgage.
There is no such thing as medical bankruptcy.
While medical debt is one of the most common reasons people decide to file for bankruptcy, you have to list all your debt on the bankruptcy forms. Your debt includes your mortgage, even if you are not currently behind on your payments. As we have discussed, with individual bankruptcy, the primary options are Chapter 7 and Chapter 13. Chapter 7 is known as a liquidation bankruptcy where the unprotected property is sold off to pay off your debts in exchange for a fresh start.
Chapter 13 is most often used to protect more assets from being sold and can be used to catch up on real estate loans to avoid foreclosure. Chapter 13 involves setting up a repayment plan over a 3 to 5-year span, and most debt that remains at the end of the repayment plan is discharged. If your concern is paying off your debt without risking the loss of other assets such as your home and car, chapter 13 is an option worth exploring.
When it comes to bankruptcy, there are laws and guidelines to protect you from losing your home, but there are limits and variables such as the amount of equity in your home and the type of bankruptcy you file. It is difficult to definitively state whether you can protect your home since every case is different. Still, suppose you are not currently behind on your mortgage or have recently fallen behind due to medical bills. In that case, there are options where you will more than likely be able to protect your home from foreclosure and the bankruptcy trustee.