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Ways to Clear Clear Medical Debt

Medical debt is a reality for millions of families across America, especially those with no insurance, high deductibles and pre-existing medical conditions. According to the Commonwealth Fund, 116 million U.S. citizens have either dealt with, or are in the process of dealing with, unpaid medical bills. Whilst the amount owed can be relatively small, others are being pursued by medical debt collection agencies for tens of thousands of dollars. All this is taking place at a time of physical and emotional vulnerability.

Medical Bankruptcy

Chapter 7: Individuals who have earnings below the median for their state and minimal non-exempt assets can clear medical debt in just 4 to 6 months. This will show on your credit report for a period of 10 years. However, provided payments on other credit agreements are made punctually, your FICO score will start to improve after just 2 years.

Chapter 13: Those unable to clear unpaid medical bills under chapter 7 may be able to do so with chapter 13 bankruptcy. This involves restructuring all debts and make an affordable monthly payment for a period of 3 to 5 years. This will show on your credit report for a period of 7 years.

- Figures produced by the American Journal of Medicine showed that 62.1% of all insolvencies were considered a medical bankruptcy.

Debt Settlement Plan

This involves carrying out a negotiation process with creditors to reduce the principal. Once a debt reduction has been agreed, an affordable monthly payment is made to an intermediary for a period of 12 to 36 months. Any remaining money owed is written-off under a debt settlement plan. Although negotiable, a fee is added up-front which will increase the amount owed in the short-term. There aren't many companies that assist with unpaid medical bills. However, those who have paid-off medical debt with their credit card could consider this debt solution. Wait until the debt is in the hands of a collection agency before proceeding as creditors are less likely to agree if they are receiving repayment on-time.

Debt Management Program

All unsecured debt is managed by an intermediary under a debt management plan. Instead of making payments to each company, an affordable monthly payment is made which is disseminated to creditors on a pro rata basis. This doesn't involve any debt write-off, although it may be possible to free interest payments and further charges. It will reduce pressure from medical collection agencies, but it can take a number of years to reduce the amount owed. Chapter 7 medical bankruptcy may be preferable, particularly for those who have minimal disposable income available.

Full-and-Final Settlement

A number of individuals use savings to clear part of any credit card or medical debt that is outstanding. However, interest and further charges usually mean that the debt quickly escalates and medical collection agencies will soon be in-touch again. If an agreement has already been defaulted on, negotiate a reduced full-and-final settlement with creditors. A number of credit card and unpaid medical bills are being settled for as little as 30% of the amount owed.

If you qualify for chapter 7, medical bankruptcy is the most effective way of dealing with serious debt. Consider a debt management program or debt settlement plan for more modest unpaid medical bills.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 6 May 2011

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