Health care debt is classified as unsecured debt and is treated the same as credit card debt in all bankruptcy chapters.
If the debtor meets all criteria for a chapter 7 and is entitled to a discharge, all of the health care debt will be discharged and eliminated in the chapter 7.
Health Care Debt in a Chapter 13
All unsecured debt is paid the same as all other unsecured debt. All unsecured debt must be treated the same. The court adds all unsecured debt, together, including credit card debt, health care debt, and any other unsecured debt. Then, the court looks at the following three criteria to determine the amount that must be paid towards all of the unsecured debt:
1. Unexempt real estate or personal property values;
2. Amount of disposable monthly income, pursuant to the Means Test or Current Monthly Income Test;
3. Amount of monthly disposable income, pursuant to the debtor’s projected future average disposable income, after deducting reasonable and necessary monthly expenses from net income.
In general, the easiest explanation as to the amount that must be paid towards health care debt in a chapter 13 is as follows: Usually the debtor pays only the amount he is able to pay on monthly basis during the life of the bankruptcy plan, based on his disposable household income.
The unsecured debt is paid pro rata. This means that each month the trustee will disburse a portion of the funds due to each unsecured creditor, based on the debtor’s disposable income and his ability to pay. When the plan is paid and completed, the balance that is due to each unsecured creditor, including each health care debt, is eliminated and discharged. Typically, if the debtor does not have sufficient disposable income to pay any amount towards the unsecured debt, the entire amount due to the unsecured creditors is eliminated and discharged.
Although unusual, if the debtor owns real estate or personal property, with a substantial value, the debtor is required to pay an additional amount towards the unsecured debt, which includes health care debt.
The debtor may be required to pay all unsecured debt, if he owns property having a substantial value, and/or has sufficient disposable income to pay all of the unsecured debt.
Robert Manchel, a bankruptcy lawyer in NJ, can be contacted at 1 (866) 503-5655, to discuss your bankruptcy protection questions and concerns.