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Durham Bankruptcy Law Blog

Growing medical debt often leads to bankruptcy

Medical debt affects over 137 million Americans in North Carolina and across the country. Despite the passage of the Affordable Care Act, many people face expensive medical bills that they are unable to repay. According to one study, medical bills are the primary reason for people of any age to cash in their retirement savings or 401(k) plans or take even more serious action to address a financial crisis. Research indicates that two-thirds of all bankruptcy filings across the country are at least partially linked to significant amounts of medical debt.

People who have lost their insurance for a number of reasons - including some people with bills that date back to before the health care "Marketplaces" - may find themselves facing escalating medical debt, especially if they face a serious medical crisis that requires hospital care. Even people with insurance may have high-deductible plans, require out-of-network coverage or need costly prescription drugs. People often face high bills from hospitals that may not be fully descriptive. In addition, some hospitals, often planning their pricing for insurance companies, may charge far more than others for the same surgery or treatment. Research has also shown that more expensive hospitals do not provide a higher quality of care.

Bankruptcy rates among older Americans are soaring

Senior citizens in North Carolina and around the country are filing for bankruptcy in unprecedented numbers according to a recent study. Chapter 7 and Chapter 13 bankruptcies filed by Americans between 55 and 64 years of age have risen by 66% since 2016, and the number of retirees in the United States seeking debt relief has more than tripled. These were just two of the sobering statistics a University of Illinois professor discovered when he looked into the financial challenges faced by older Americans.

Most personal bankruptcies in the United States are filed to escape overwhelming medical debt, and this is especially true among older filers. The University of Illinois professor says that 60% of the American retirees who file bankruptcy petitions do so because they have health care bills that they are unable to pay, and many of these senior citizens only turn to debt relief after exhausting their savings.

What happens to your debt if your ex-spouse files for bankruptcy?

During a divorce, the North Carolina family courts determine a reasonable and fair way to split up both the assets you've acquired during your marriage and the debt you share as a family. Many times, the spouse who has greater overall assets or income will wind up responsible for a greater share of the debt from the marriage as well.

Still, while the courts may have ordered your ex to pay, that doesn't mean you have completely washed your hands of your financial obligations unless your ex refinances that debt as part of the divorce. In some cases, you could still wind up obligated to pay those debts or face the potential impact of non-payment on your credit.

The statute of limitations for unpaid debts in North Carolina

The statute of limitations is the amount of time that creditors have to take legal action to recover an unpaid debt. Once the time period allowed by the statute of limitations has passed, debt collectors can still try to collect monies owed, but they cannot file lawsuits against delinquent borrowers or garnish their paychecks. In North Carolina, the statute of limitations for automobile loans, installment loans, credit cards and promissory notes is three years from the date of the last payment or charge.

What this means is that every payment made on a delinquent account resets the clock and restarts the statute of limitations. This is why North Carolina residents who are experiencing financial difficulties should consider their options carefully when deciding which bills to pay and which to allow to fall into arrears. It should also be noted that delinquent payments will usually remain on credit reports for several years after the statute of limitations has passed.

Discharging credit card debt through Chapter 13

Chapter 13 bankruptcy is one of the most useful tools that the law provides for individuals with debts they struggle to manage. Unlike Chapter 7 bankruptcy, Chapter 13 may not require sacrificing significant assets to discharge debt, instead allowing individuals with sufficient income to repay their debts through a court-approved repayment plan.

Filing Chapter 13 bankruptcy provides borrowers with needed relief, protecting against mounting debt and halting collections efforts by creditors. However, it is important for anyone considering Chapter 13 to understand that not all individuals qualify for the process, and the process itself does not do away with every kind of debt.

Bankruptcy is a fact-specific decision

The decision of whether to file for bankruptcy in North Carolina can be a difficult one, and it turns on the facts of the case. Every debtor's situation is different; a certain amount of debt in one case might call for bankruptcy while debt restructuring might be a better option in another case. Among the first things to consider are the broad financials, income, expenses, assets and liabilities. It's also important to be aware that many creditors have little incentive to settle debts.

An examination of disposable income and outstanding debt levels may solve the question right away. If there is no way that a person can hope to pay down his or her debts, even after stripping expenses as far as possible, it may make sense to file for Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the petitioner is required to give up all non-exempt assets and use the proceeds to pay off debts. Assets like a car, work tools and home equity may be exempt in some cases.

How to save your house from foreclosure

You've slipped behind on your mortgage payments and you have serious concerns about losing your home to foreclosure. As stressed out as you may be, don't give in and assume that you have no options.

There are several ways to save your house from foreclosure, including the following:

  • Mortgage modification: Don't forget that your lender would rather work something out with you than foreclose on your home. They're in the business of servicing loans, not buying and selling real estate. If you're willing to negotiate and compromise, you may be able to modify your mortgage to secure terms and conditions that better suit your finances.
  • Short sale: A short sale is when your lender agrees for you to sell your home for less than what you owe, without any requirement for you to make up the difference. While a short sale allows you to avoid foreclosure, you're unable to stay in your house.
  • Bankruptcy: Even if the foreclosure process is in full force, filing for foreclosure will stop it for the time being. Once you file with the court, federal law prohibits your lender from proceeding with collection activities. The thing you need to remember is that the automatic stay only does so much for you. There will still come a time when you need to work things out with your lender. Bankruptcy doesn't stop foreclosure for good, but it can buy you enough time to figure things out.

Discharging student loans in a personal bankruptcy

Most college students in North Carolina and around the country will be in debt to the tune of thousands of dollars when they enter the workplace, and many of them will find it extremely difficult to make their required monthly payments. The nation's bankruptcy code was revised in 2005 to make student loan debt nondischargeable in most bankruptcy cases, but there is an exception to this general rule when continuing to make payments would impose an undue hardship on the petitioner.

However, lawmakers chose to not clearly define what an 'undue hardship" is when they drafted the Bankruptcy Abuse Prevention and Consumer Protection Act, so deciding what the nebulous term actually means has been left to the courts. The Department of Education is working to develop a nationwide standard, but most courts currently apply what is referred to as the Brunner test to make these decisions. In 2016, the Fourth Circuit ruled that bankruptcy courts in North Carolina must apply the Brunner test.

Credit card debt is increasing rapidly across the U.S.

Credit card debt is a worry for North Carolina residents and people across the United States. Since making ends meet can be difficult, people are frequently using their credit cards to bridge gaps and make necessary purchases. In other instances, people spend beyond their means and find themselves in financial trouble. Research shows how prevalent this is.

A study by WalletHub examining credit card debt in California shows that on average, households owe more than $10,000 on their credit cards. In the second quarter of 2019, $4.4 billion was added to Californians' credit card debt. This adds to the growing debt concerns across the nation with Americans in debt for more than $1 trillion in credit cards from the start of the year. During the second quarter of 2019, there was an overall debt increase of $35.6 billion.

Bankruptcy can be a way to end pending creditor lawsuits

Getting served is usually an experience you don't expect to happen, which makes it relatively unsettling. A stranger confirms your name with you and then hands you paperwork, informing you that this is service for a legal matter. For hundreds of people across North Carolina every year, those papers relate to a creditor attempting to collect on a debt that has gone unpaid.

Whether your family fell behind on credit card payments and couldn't make them anymore or incurred massive medical expenses because of a car accident or illness, you could find yourself facing a lawsuit from your creditors, despite the nature of the debt or your current financial circumstances. In fact, even nonprofit hospitals can and will sue people who make minimum wage over unpaid medical debt.

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