Will Chapter 7 and Chapter 13 Bankruptcy Discharge Medical Bills?

Will Chapter 7 and Chapter 13 Bankruptcy Discharge Medical Bills?

I’ve been getting this question about bankruptcy a lot lately for some reason. So much so that I feel it’s time to write a blog post about it. I don’t know what bad information about bankruptcy is going around now, but I’ve had several clients and potential clients mention that they’ve heard recently that medical debt is not dischargible in bankruptcy. This is incorrect.

In bankruptcy, medical debt is considered a non-priority unsecured debt. As a result, a chapter 7 discharge would apply to medical debt. So if you file chapter 7 bankruptcy, qualify, and fulfill all court requirements, the discharge would apply to the medical debt. If you file a chapter 13 bankruptcy and successfully fulfill all court requirements and complete all plan payments, the discharge (assuming it wasn’t a 100% chapter 13 bankruptcy plan) would apply to your medical bills. Of course, all adversarial considerations would apply to any discharge. However, assumming that there are none, medical debt is absolutely dischargible in chapter 7 and chapter 13 bankruptcy.

Feel free to call 480-355-1377 to speak to an experienced Arizona bankruptcy attorney.

Bankruptcy in Arizona – What is a 341 Meeting of Creditors, and What Can I Expect?

Bankruptcy in Arizona – What is a 341 Meeting of Creditors, and What Can I Expect?

The Bankruptcy Code maintains that every person or entity, who files for bankruptcy, must have a hearing with their court appointed trustee on the record and under oath. The purpose of the hearing is to gather information, clear up issues, and allow creditors a chance to be heard on the record, if they wish.

The name “Meeting of Creditors” is somewhat inappropriate however, because in most consumer cases (Chapter 7 & Chapter 13) creditors rarely attend this hearing. In fact, of the literally hundreds of consumer bankruptcy 341 hearings I’ve served as attorney of record on, I’ve only had a creditor attend a hearing twice. The first was for something personal (client owed a friend money) and the second, the creditor’s attorney simply entered their appearance. This meeting should be renamed, the “Trustee Hearing” which is what we call it anyway.

What will be asked?

The trustee or the trustee’s attorney assigned to your case will conduct your hearing. They will first look at your ID and Social Security card to be sure that you are the Debtor.  If you forget either one of these items, your case will be continued, and you’ll have to come back another time.

You will be sworn in. The trustee will ask you to raise your right hand and swear to tell the truth, under penalty of perjury.

The following are the most typical questions asked:

  1. Please state your name for the record
  2. What is your address?
  3. What is a good day time telephone number?
  4. Have you lived in Arizona for the better part of 180 days before the filing of your bankruptcy petition?
  5. How long have you lived in Arizona?
  6. Have you filed bankruptcy before?
  7. Are you personally familiar with all the information listed in your petition and statements?
  8. Does it list all your assets?
  9. Does it list all your debts?
  10. Do you owe anyone child support of spousal maintenance?
  11. Are you entitled to an inheritance of any kind?
  12. Are you expecting an award from a law suit?

At the end of the hearing, the trustee will ask if any creditors are present. 99% of the time there are none. The trustee may also ask something specific about your case. For example if any documents are missing, the trustee will ask for them (usually a bank statement or the like). In most cases, the trustee hearing is very straight forward.

Most law firms designate an attorney (usually a new attorney) to go to your hearing with you, regardless of whether that attorney worked with you on your case or not. I disagree with this practice.  An attorney who has never seen your file until the hearing, has no business representing you there.  Even though the 341 hearing is straight forward, the attorney you worked with, or an attorney who has personal knowledge of your case, should be there with you in the event of an issue arising.

Bankruptcy Myths – What Credit Card Companies Don’t Want You to Know

Bankruptcy MYTH 1: I’ll never be able to buy a home if I file bankruptcy.
Wrong. You probably can’t buy a home now, but bankruptcy will help you with several things moving forward. Bankruptcy will give you the ability to save for a down payment. Also, you will have the income to qualify for a mortgage, something you probably can’t do now because your debts take up all of your disposable income. Most people in Arizona can qualify for a mortgage within 2 years after their bankruptcy. To qualify for a mortgage, your debt cannot exceed a certain percentage of income per month. If your debt is too high, you will not qualify, EVEN IF YOU HAVE PERFECT PAYMENT HISTORY! That is why “robbing Peter to pay Paul” will never solve your problems. Many people continue to borrow on one card to make payments on another thinking that on-time payments are all that matters. That is totally wrong. You can consult any mortgage lender to verify this.

Bankruptcy MYTH 2: I can have my bankruptcy filed by a Document Preparer.
In Arizona, Document Preparers charge you a fee to prepare and file your bankruptcy. However, Document Preparers cannot legally give you advice because they are not attorneys. If they are, they are breaking the law. They simply file whatever bankruptcy papers you ask them to file, whether you should do that or not. Our law firm recently represented a client who had a Petition Preparer file a Chapter 7 for her even though she had $200,000 worth of equity in her house. Her assets exceeded her debts and she would have lost her house to her creditors. We are converting the woman’s bankruptcy to a Chapter 13 to help her keep her house. We have seen several cases in 341 bankruptcy hearings where Bankruptcy Debtors have had their bankruptcy petition prepared by a document preparer, and didn’t know they were un-exempt, or over an exemption on certain property. The result can be devastating. Remember, anyone can file bankruptcy forms, but without an experienced attorney advising you, you could end up losing thousands of dollars of assets to creditors.

Bankruptcy MYTH 3: Everyone will know I’ve filed for bankruptcy.
Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. While it’s true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, especially Phoenix-Mesa, Arizona bankruptcy filings, very few publications have the space, the manpower or the inclination to run all of them.

Bankruptcy MYTH 4: I’ll lose everything I have.
This is a common misconception that keeps people who really should file for bankruptcy from doing it. While the bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car money in qualified retirement plans, household goods and clothing. In fact, most people, will pass through a bankruptcy case and keep everything they have. If you have a mortgage or a car loan, for example, you can keep those as long as you keep making the payments.

Bankruptcy MYTH 5: I don’t have to list all of my creditors.
This is not true. In Phoenix, Arizona, and perhaps all districts, you do have to list all of the debts that you owe and the property that you own in your bankruptcy petition. You cannot discriminate between creditors, even if you want to keep paying them. It’s great that you to want to continue paying creditors, but it is still mandatory to include the debt. If you feel like paying it after the bankruptcy then go ahead, but you will not be obligated to.

Bankruptcy MYTH 6: Both you and your spouse have to file bankruptcy together.
Actually, you can file bankruptcy in Arizona together or separately. The choice is yours, but you must qualify to do so in certain chapters, for example, you must still either pass the means test, or be under the median income in a Chapter 7 bankruptcy. In many cases it makes sense for husband and wife to file together, but in some instances the spouse might not want to file.

Bankruptcy MYTH 7: You can only file bankruptcy once.
You can file for bankruptcy in Phoenix-Mesa, Arizona, as many times as you like, but there are some time limits. You can receive a discharge from Chapter 7 every 8 years. You can receive a discharge from Chapter 13 every 2 years. If you get discharged in a Chapter 7 you have to wait 6 years before getting a discharge from Chapter 13. If you get a Chapter 13 discharge then you need to wait 4 years to get discharged from a Chapter 7. However, there is no waiting period if your case is dismissed. You can file back to back should you choose.

Bankruptcy MYTH 8: If you file for bankruptcy, creditors can still harass you.
Not True. When a bankruptcy case is filed in Phoenix, Arizona, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.