4 ways to pay lingering medical debt

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Dear Debt Adviser,
I filed for bankruptcy a year ago and now I have medical bills, with no way to pay them. How and what can I do to resolve this?
— Tracy

Dear Tracy,
Clearly you are a person of few words! So, let me get right to the point. The causes of your bankruptcy filing and your inability to handle your medical debt really don’t matter. Your situation is what it is and you need to come up with a plan to get your medical bills addressed. You say that you have no way to pay your debt. But you don’t say why. I encourage you to revisit this assumption.

It sounds to me as though you may be giving up prematurely. I suggest you rearrange your budget, reconsider your earning situation and then go visit your medical providers with a plan.

One mistake I often see in the case of medical debt is that people ignore their medical provider. I recommend you do whatever you can to keep your provider from turning over the account to an outside collector. Doing so will accomplish two things. One, it will most likely keep the accounts off your credit report because most medical providers do not report to the credit bureaus while most collectors do. This will give you the opportunity to rebuild your severely damaged credit report, which may help you lower expenses for housing, insurance and more. Two, the medical provider has other responsibilities. They will be less likely to make your life miserable by trying to collect what you owe all at once if you offer them a reasonable and thought-out payment plan.

Before you approach the people to whom you owe money, I want you to take a hard look at your monthly expenses. Your goal is to create a debt management plan that frees up at least 10 percent of the total amount you owe. Then, offer that money as a monthly payment to your medical provider. For example, if you owe $2,000, you would need to adjust your monthly spending to make a $200 monthly payment. Your provider should be willing to accept monthly payments with a total debt payoff in 10 months.

If you cannot afford to pay 10 percent of the total amount of debt owed monthly, contact the provider and let them know what you can afford to pay each month. The provider may allow you to make a smaller monthly payment, and if it does, be sure to pay on time. If you miss a payment, it is likely the agreement will be off.

Bankruptcy is not an option for you. The rules for filing a Chapter 7 bankruptcy state that you are not eligible to file again until eight years after the date of filing for a previous Chapter 7, or six years from the filing of a previous Chapter 13. The rules for filing a Chapter 13 bankruptcy state you are not eligible to file again until four years after filing a previous Chapter 7, or two years after a previous Chapter 13.

Filing bankruptcy should be a last resort to handle a debt, particularly for someone who has previously filed. So, if you can’t find room in your monthly budget to pay your medical bills, I have some other suggestions for you to consider:

  • Look for a better paying job, more hours or a part-time job.
  • Borrow the money from a friend or family member. Put the loan terms in writing and stick to your end of the bargain.
  • Sell an asset such as land, a boat or hobby equipment. If you have two cars, sell one and make do with only one vehicle. The monthly savings on insurance could be significant.
  • Cash in a life insurance policy or borrow against it.

As you have found, a bankruptcy can be like hitting a reset button. The old debt problem disappears, but you need to do some things differently or you are likely to find yourself right back in debt where you were originally. Perhaps the most important change I can recommend is to begin putting even a small amount of money into a savings account on a regular basis to build an emergency savings cushion. Without savings to cover unexpected expenses, you will find yourself perpetually in situations such as this again and again.

Good luck!

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