Millions of Americans experience economic hardship after sustaining a serious injury or illness. The high cost of health care makes it difficult for many to bounce back financially. However, filing for bankruptcy may offer a solution.
What is bankruptcy?
Bankruptcy is a legal process that allows a person to get rid of some or all of their debts if they cannot pay them. In Indiana, debtors interested in filing for bankruptcy must first undergo credit counseling and complete a course on financial management. Through this process, debtors may understand if bankruptcy is absolutely necessary.
If the debtor proceeds, their financial circumstances will help determine whether they qualify for Chapter 7 or Chapter 13. Both are types of personal bankruptcy but offer distinct pathways to financial relief.
Chapter 7 bankruptcy: A swift solution
If a person’s income is below the average in Indiana, they qualify for Chapter 7, also called liquidation bankruptcy. Here, a bankruptcy trustee will sell the debtor’s non-exempt assets to repay creditors. Even if liquidation does not raise enough money to repay health care providers in full, medical debts may still be cleared.
This process can take four to six months, but protection from creditor actions starts automatically, offering immediate relief.
Chapter 13 bankruptcy: A structured approach
Individuals with regular, higher incomes may opt for Chapter 13 bankruptcy. This allows them to retain many of their assets while repaying what they can afford over a three- to five-year plan. The automatic stay applies here as well, preventing creditor actions.
Unlike Chapter 7, Chapter 13 has a debt limit of $465,275 for unsecured debts. Individuals with higher debts may need to file Chapter 11, a longer and more complex process.
Making the difficult decision
For those weighed down by medical debt, bankruptcy can be a lifeline. However, it is a significant decision with potential implications. Although Chapter 7 may be significantly faster, debtors may be unwilling to lose certain assets or properties. Meanwhile, debtors who file Chapter 13 may feel they have little to no financial flexibility.
Seeking professional bankruptcy guidance, even before filing, can provide individuals with the insights and knowledge they need to make decisions that affect their immediate future.
