If it’s been several months and your medical bills aren’t being paid (and may never be), bankruptcy can give you immediate and permanent relief from medical bills from a car accident.
The Accident Put You in a Financial Dilemma
If you’ve been seriously injured in a vehicle accident, there are many scenarios in which you could be hurting financially, even if the accident was not your fault and you had insurance.
The other driver may have been uninsured. So if you had only the legally required liability insurance, there would be no auto insurance to pay for your injuries. Then if you had no medical insurance, you would have to pay for all of your medical expenses—which could easily total many tens of thousands of dollars, or even a few hundred thousand dollars. Even if you had medical insurance, the deductibles, co-pays, and coverage limits could easily leave you owing most of your medical bills.
Even if you did have more auto insurance coverage than the legal minimum and you had some uninsured motorist insurance, intended to cover your medical bills if you were hurt by an uninsured motorist, your uninsured motorist coverage limits may be not nearly enough to cover your medical costs.
And even if the other driver did have the minimum legally required liability coverage, its policy limits may well not be nearly enough to cover your medical costs. For example, if you had $100,000 in medical bills—all too likely with even a moderately serious set of injuries—and the other driver had $25,000 in liability coverage, you’d be personally responsible for the remaining $75,000, depending on how well your medical insurance covered those bills.
And beyond the medical bills, you may have lost a lot of income when you couldn’t work while being injured. So you likely fell behind on your other debts. You may or may not have had insurance that would reimburse you for this lost income, either through a vehicle or disability insurance policy. And even if you have some coverage, it’s often limited to a certain percentage of your regular income and/or capped at a monthly maximum. So one way or the other, you likely had a reduction in income, and often a huge one.
The bottom line is that you owe a lot of medical bills, and likely a lot of other debts. Even if you are now healed and back at work, you’re reeling financially. And if you’re still not fully healed, it’s that much harder to deal with the financial mess.
Bankruptcy Helps by Buying Time
Especially if there is a dispute about who was at fault for the accident, medical bills that may eventually get paid aren’t getting paid when they are due. And medical providers can be very fast at sending bills to collections if they are not paid within a few months of when they’re due.
Both kinds of consumer bankruptcy—the Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts”—will immediately stop any collection action by medical providers and collectors—everything from the deluge of collection letter and phone calls to the threatened lawsuits and judgments and even ongoing wage garnishments.
That way the legal obligations of the different drivers and their insurance companies can be sorted out without you going crazy in the meantime from the financial pressures.
Bankruptcy Helps by Discharging All Medical Debts
You may have heard that certain kinds of debts cannot be written off—or “discharged”—in bankruptcy, like certain income taxes and most student loans. You may have possible even heard somewhere that medical bills can’t be discharged. That is wrong. They are among the easiest to discharge.
Under a Chapter 7 case, medical debts are virtually all discharged just three months or so after your case is filed.
Under a Chapter 13 case, a portion of these medical debts may need to be paid, depending on how much you can afford to pay and what other debts you owe. Often, not much has to be paid on medical debts, and sometimes nothing. Then at the completion of the three-to-five-year Chapter 13 case, whatever portion of the medical debts that have not been paid is permanently discharged.
Bankruptcy Helps by Protecting Some or All of Your Insurance Proceeds
You may have heard that if you file bankruptcy then money that you are owed—such as from an auto accident—will be taken from you to pay your creditors. The truth is that most of the time insurance proceeds to cover bodily injury, lost wages, disability and other purposes can be protected.
Although Chapter 7 is a “liquidation” form of bankruptcy, there are “property exemptions” that may apply to your anticipated insurance proceeds. Those exemptions may allow you to keep all the insurance proceeds. And in situations where they don’t cover all the proceeds, the portion going to your bankruptcy trustee is often paid mostly to “priority” debts, which often happen to be exactly the debts that you want to be paid, such as recent income taxes or back child support.
In other situations where the property exemptions aren’t expected to cover the anticipated insurance proceeds, Chapter 13 may be a better option. You can often better protect the anticipated insurance proceeds. And you may be able to earmark where those proceeds will be paid, either to certain important creditors or possibly to urgent expenses, such as vehicle repairs or even a vehicle purchase.
Car Accident + Insurance + Bankruptcy = Potentially Confusing
The interplay between injury law, insurance law, and bankruptcy law has many twists and turns. It is genuinely difficult—arguably impossible—to figure out how they apply to your own circumstances without professional guidance. Your 2015 will be a better year if you get that guidance, find out your options, and get help in choosing the right one for you.