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Medical bills and credit cards are wiped out in Chapter 7

Medical bills continue to be a major problem for consumers nationwide, and in Pennsylvania. Although the Affordable Care Ace is supposed to implement caps on an individual's spending for medical expenses, most knowledgeable observers believe that the pressures of medical expenses on most Americans will continue. In particular, it is predicted that over half of all consumer bankruptcies will continue to reflect medical expenses as a major contributor to the debtor's problems. Fortunately, federal law provides for a resolution for most consumers: filing a Chapter 7 bankruptcy.

A Chapter 7 is the most popular consumer filing. Under federal bankruptcy law, an individual, or husband and wife joint filers, can wipe out generally all unsecured debt quickly and permanently, as part of the process of obtaining a "fresh start." Unsecured debt is such debt that is not associated with collateral. Thus, a Chapter 7 can eliminate not only all medical bills but also all credit card bills and any unsecured loans or other similar bills.

The idea that one who files a Chapter 7 will lose all of his or her property, or will never get credit again, is incorrect. In a Chapter 7, most debtors will be able to retain all of their basic belongings and furnishings due to exemptions provided for by law. This includes exemptions for cars and other items. Wild card exemptions under federal law make it feasible to exempt a certain amount of miscellaneous belongings or even bank deposits.

With respect to credit, the credit ratings of those in Pennsylvania and elsewhere who successfully complete a Chapter 7 can be improved over a relatively short period of time with some focused effort by the consumer. For example, in a Chapter 7 the debtor can keep a car and reaffirm the loan payments. As the debtor continues to pay the car payments after the bankruptcy is completed, these payments are reported and serve to increase one's credit rating. There are several other proper methods for rebuilding one's credit record.

Source: The Washington Post, "Why your fear of medical debt is entirely justified", Jason Millman, Sept. 4, 2014

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