Medical bankruptcy is a general term applied to all chapters of the Bankruptcy Rules. It refers to the growing factor in the increasing need to file bankruptcy. Escalating medical costs, unemployment, the out of control cost of living and lack of healthcare are forcing more and more Americans to file medical bankruptcy.
Out of the medical bankruptcy cases filed in recent years, most are petitioned by the elderly, single mothers and armed forces veterans. People are finding it increasingly difficult to make ends meet. Many illnesses such as cancer, diabetes (which is on the rise), lung disease and those illnesses many of our veteran suffer after spending time overseas, have financially crippled our society.
Rather than risk losing what the general populace has worked for all their lives, many have no choice but to file medical bankruptcy. Depending on your financial position and ability to make modified payments to creditors, two options are available to the middle to lower class individual: Chapter 7 bankruptcy and Chapter 13.
To determine your eligibility, and under which chapter to file medical bankruptcy, you will have to pass the means test. The guidelines are available online. Basically, the means test has two parts. The first is to weigh your income and family size against the median income under like conditions in your state. If you discover you fall within the parameters, move on the step two. Step two considers your disposable income versus total outstanding debt. Disposable income is calculated by subtracting the IRS allowable expenses, such as transportation, housing and utilities, food and clothing from your gross income. The difference is your disposable income. Multiply that number by five years.
Now, take your total debt, including secured and unsecured to come up with a total sum. Note that when filing Chapter 7 medical bankruptcy your non-exempt assets will be sold to pay off debt beginning with the creditors who hold an interest in property. Exempt property varies from state to state. Check your state for applicable exemptions regarding your home, property and cars.
If your disposable income, based on this simple math, is $6,000 or less, you have passed the means test and can file your medical bankruptcy petition under Chapter 7. If not, Chapter 13 will allow you to keep all of your property and devise a repayment plan over the course of three to five years.
After you have done your preliminary homework, contact a bankruptcy attorney to represent and guide you through your medical bankruptcy proceedings.