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My medical bills are piling up after stroke, what do I do? Advice from a bankruptcy attorney

October 8, 2013 12:50 am

 

John Hilla Michigan bankruptcy attorney

John Hilla, a bankruptcy attorney out of Michigan, was kind enough to answer our questions on what to do when your medical bills are piling up after stroke. John is out of the Hilla Law Firm in Farmington Hills.

The good news is, you have options. The bad news is… medical debt is no different than any other debt and it does not go away.

Take a look at his advice on your financial options below:

Q. Many young stroke survivors lose their jobs because they are disabled and working on their recovery, or they are unable to do what they previously did for work. When a patient has lots of medical bills that have gone into collections from hospitals, therapy and different doctors, what are the options for paying them off when they have no income?
A. The answer lies in the question you ask here … Not many are the options. Some hospitals may agree not to collect the debt or may offer a payment plan as a matter of internal policy, but, generally, this will not be the case. Deficient medical debt is pursued just as aggressively by collectors and collection agencies as any other form of debt.

Q. Is it possible to negotiate down outstanding medical bills?
A. If a debt victim has a collection agency pursued, it may be possible to work out a debt settlement with the collector, but that requires generally an ability to make some level of lump-sum payment and the ability to deal with the tax consequences of the “charged off” or forgiven portion of the debt, for which the collector will 1099 the victim as if they’d worked as a contract employee for that company that year.

In other words, there can be taxable consequences from even “forgiven” debt.

Q. What is medical bankruptcy?
A. There is no such thing as “medical bankruptcy,” per se. Rather, there is simply “bankruptcy.” Either a Chapter 7 or Chapter 13 individual bankruptcy will easily and completely discharge medical debt. One of the most common reasons for people to file for bankruptcy is a medical situation. Bankruptcy has become the de facto safety net for Americans who do suffer a serious medical detriment in lieu of real universal healthcare.

In bankruptcy, medical debt is classified as “non-priority unsecured debt.” It is simply dischargeable in all circumstances. Contrary to popular belief, very few people choose to file bankruptcy. Instead, they are forced by circumstance to look at the option. Medical disasters are a primary example of this.

Q. Who can file medical bankruptcy?
A. Again, the right question here is, “Who can file bankruptcy, period?” This is a larger question involving a calculation of household income and expenses and a hard look at an individual’s assets, prior financial transactions, and many other factors. Determining whether an individual is eligible for bankruptcy requires a consultation with an experienced bankruptcy attorney, which should include a complete examination of the individual’s financial circumstances.

Most Michigan bankruptcy attorneys, like myself, do not charge a fee for initial consultations.

Relief from debt through bankruptcy is a Constitutionally guaranteed right, however. At the end of the analysis, nearly everyone is eligible for one form of bankruptcy or another, and the conversation at an initial consultation with an attorney generally focuses on whether there is a better non-bankruptcy option and, if not, whether Chapter 7 or Chapter 13 bankruptcy is most appropriate.

Q. What happens if the patient just does not pay all of his or her medical bills?
A. They will end up in collections. There will be collections harassment, collections lawsuits, and, eventually, bank account, wage, or state tax return garnishment and/or seizure of personal assets and/or placement of judgment liens on the patient’s home, if owned.  Additionally, as noted above, if the debt is “charged off” along the way (meaning that it is reported to the IRS as lost business income, NOT that the collector cannot continue collecting it!), the patient will also suffer taxable penalties, potentially.

The discharge of debt in bankruptcy is always a tax-free event.

It is never a good idea to simply try to ignore debt.

Q. Does a letter from a lawyer representing the medical provider mean anything different than the letters from the medical collection agencies?

A. The only lawyers that would be mailing letters on behalf of either are professional debt collectors. If a patient/victim is receiving such letters, they are in collection and are in serious jeopardy of suffering the consequences described above.

Q. Does not paying medical bills affect a person’s credit score?
A. Generally, hospital and private care providers do not report debt to the three credit bureaus. Thus, defaulting on that debt will not immediately affect an individual’s credit score. However, most of the major medical collections agencies, once they receive the debt from the originator, do report the debt to the credit bureaus. Eventually, the debt is likely to negatively affect one’s credit score.

Q. Can hospital bills go into medical collections?
A. Absolutely, as discussed above. Hospitals are ultimately in the business of providing medical treatment and not chasing down unpaid bills. They outsource that job to professional debt collectors, and those debt collectors are just as vicious about executing their jobs as any other kind of debt collector.

Q. Is the process for resolving outstanding hospital bills different than for resolving outstanding doctor/provider bills?
A. Hospitals receive in many cases Federal and State funding, and they do have obligations to provide treatment regardless of ability to pay above and beyond what individual private medical practitioners have. But, ultimately, an unresolved medical bill of either sort is generally going to end up in the hands of a professional collector, with the above-described consequences.

Q. What do young stroke survivors with a lot of medical debt need to know?
A. Such individuals need to know that they do have options. If nothing else, consult an experienced bankruptcy attorney to examine that option. A bankruptcy will likely be cheaper than any kind of debt settlement, will certainly have fewer tax consequences, and will provide a guaranteed discharge, so long as the individual has not engaged in any fraud. No negotiation with creditors or collectors will ever be required. It’s not anyone’s first choice, but it is an extremely effective and cost-effective choice relative to the tens and hundreds of thousands of dollars of debt that can result from a serious medical emergency. It is the only debt-management device that operates with the force of Federal law. It exists to help you get a fresh start after suffering unfortunate consequences.

Q. Anything else you would like to add?
A. If someone is dealing with unmanageable debt, medical or otherwise, the last thing they should be focused on is whether their credit score is 650 or 750. Bankruptcy does have effects upon credit that I discuss with each of my clients at our initial consultations, but it also flushes bad debt and gives individuals the ability to rebuild their credit within a predictable timeframe. Fear of the “B-word” should not keep people from examining all of the options available to them.

Related information:

I had a stroke and lost my job, where can I get my aid and insurance? 

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