debt

No insurance, huge medical bill. Any cure?

Steve BucciDear Debt Adviser,
I was operated on in an emergency room in 2010 for a burst appendix. I was shopping for insurance at the same unfortunate time and had no insurance when I had the operation. The hospital promptly racked up a bill of $44,000 and sent it to a collection agency. A few days ago, the calls stopped from the agency. I do not know what my options are. Would they go to court and attach my paychecks? What is the best way to settle this with the hospital, as paying $44,000 in medical bills is almost next to impossible for me?
-- Stressed

Dear Stressed,
Let's take a look at this. Even though health care costs are seemingly out of control, the bottom line is you did incur this debt. I know you didn't mean to or want to, but you did. This is precisely the type of situation that causes people major financial distress -- a large expense that is unexpected with no funds available to pay it.

Now, I'll address your question of whether they'll take you to court for the large debt. First, find out if the debt is past the statute of limitations to collect in your state. If it's not, it is quite likely the collector will sue you in court. Will they attach your paychecks? It is likely the collector would be awarded a judgment in court for the amount owed, plus legal fees. The judgment could then be used by the collector to garnish your wages or collect in other ways down the road.

There are some options to make your situation work out for both parties. By the way, any solution has to work out for both parties if it is to work out at all. My recommendation is to communicate with the hospital before the collection process progresses to the point of involving the courts. The hospital understands that most people don't have $44,000 in savings to pay a bill. However, they will want to hear from you.

Take a hard look at your monthly expenses, and determine what you could pay toward your hospital bill each month. Communicate with the hospital, and let them know you owe them your life and appreciate what they've done for you. Tell them you do want to pay, and give them a monthly payment amount you can afford. Should the hospital be unwilling to work with you or accept your monthly payment offer, let them know that under the circumstances, you may have to consider filing for bankruptcy.

Depending on your current financial situation and your income, bankruptcy may be your best option if the hospital won't work with you on a repayment plan. To file Chapter 7, in which the hospital debt would be forgiven, you must earn less than the median income level for your state. If you don't qualify for a Chapter 7, I suggest you determine which would cause less damage to your finances: filing a Chapter 13 bankruptcy or allowing the collector to garnish your wages.

A creditor can garnish only a maximum of 25 percent of your income after allowable deductions (federal, state and local taxes, Social Security, unemployment insurance, and state retirement). In a Chapter 13 bankruptcy, you must repay debt from your "disposable" income, which is defined by the courts as income "less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15 percent of the debtor's gross income."

You have had this over your head for the last two years. It's time to get it resolved. You can't ignore the debt any longer, even if the hospital won't work with you. This is a debt that won't just go away.

Good luck!

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