Medical Debt and Bankruptcy in New Mexico
Medical bills are a primary reason many individuals in New Mexico and across the country file for bankruptcy. Fortunately, recent state law changes can protect certain individuals who fall within 200% of the poverty line. You may have alternatives available to bankruptcy, especially if you have little income or substantially high income. However, if you have significant medical debts on top of other debts, bankruptcy may be the best option for obtaining a clean slate moving forward.
Below are some of the most important aspects of medical debt and bankruptcy to be aware of. You may have access to debt-relief options, protections from bill collection actions, or the ability to set up a payment plan with individual providers. You will also have a choice between two main forms of bankruptcy, should you decide filing for bankruptcy is the best path for you.
New Mexico Financial & Family Law can provide you with information and answers to your questions about resolving medical debts during a confidential case evaluation. We have aided hundreds of individuals in Albuquerque and throughout the state with finding solutions to their growing debts. Call (505) 503-1637 or contact us online to schedule an appointment now.
Millions of Americans Struggle With Medical Debt, a Leading Cause of Bankruptcy
Healthcare costs are extremely high in the United States, especially for emergencies and in-hospital care. Patients may find themselves facing a staggering amount of debt, even if they have insurance. Coverage limits, high deductibles, and coverage exemptions all have a way of building up a mountain of debt insurance holders assumed would be covered.
66.5% of all bankruptcies are related to prior medical issues, according to a 2019 CNBC report. Mortgage payments and facing foreclosure was another top reason people file, but often these issues go hand-in-hand.
The one form of relief many of these individuals have is through bankruptcy. By filing Chapter 7 bankruptcy or Chapter 13 bankruptcy, they can be eligible to repay a portion of medical debts before having the remainder discharged.
A 2021 New Mexico Law Protects Certain Individuals From Harsh Consequences of Medical Debts
Most individuals with limited means have few choices when it comes to medical debts. They have to get healthcare, especially in emergencies, but they have no way of paying for the services they are provided. This creates a vicious cycle, as the individual’s life circumstances may worsen once they are in serious debt, making another medical crisis more likely.
Recognizing this, legislators in the state of New Mexico passed a bill in March of 2021 called The Patients’ Debt Collection Protection Act. The Act was signed into law by Gov. Michelle Lujan Grisham on April 6, 2021. It lays out the following major protections for individuals with significant medical debts:
- Healthcare facilities and third-party services providers cannot take “collection actions” against care recipients who fall below 200% of the current poverty limit. Collection actions include selling medical debts to collection agencies, filing lawsuits against debt holders, establishing a lien on owned property, or obtaining wage garnishments of their income.
- Healthcare facilities are required to perform health insurance verification prior to the provision of care. If a patient does not carry insurance, the facility is required to inform the patient about public insurance (e.g. Medicaid), public programs, and any forms of financial assistance the facility offers, including payment plans. Part of the insurance verification process is that the provider must run insurance and obtain an estimate for the direct costs the patient is expected to pay for the care and services they will be provided.
- All billing statements must be itemized, with a date and description of services attached to each charge. The statement must also include whether the care provider has billed private or public insurance and what benefits were provided to reduce the balance.
These law changes don’t make medical debts go away, but they can protect certain individuals with limited income from being pursued for their medical debts.
Filing Bankruptcy on Medical Debts
Not everyone is protected by the new laws, and even those that are may wish to resolve their medical debts. If an individual has no other available means to pay their medical bills — particularly when they have other debts — bankruptcy can be the best option for them.
Bankruptcy allows an individual to pay down a portion of debts and have the remainder discharged. The only debts eligible for discharge are unsecured debts, which include medical bills as well as credit card bills and unsecured loans. Secured debts with collateral attached like a house or a car are not eligible for discharge. Certain “priority debts” like federal student loans, owed back taxes, child support, alimony, and homeowner’s association fees may not be discharged, either.
It is important to recognize that bankruptcy will affect all outstanding debts. You cannot choose to file bankruptcy on just some debts. All debts must be included in the filing, including debts not eligible for discharge. For this reason, individuals who solely hold medical bill-related debts may want to consider other options if they do not wish to affect their other credit relationships.
Chapter 7 Bankruptcy for Medical Debts
Chapter 7 bankruptcy is the most common form of bankruptcy filed. It is called a “liquidation” bankruptcy because all non-exempt assets are sold in order to pay down a portion of owed debts. All unsecured debts are lumped into one large category, and any contributions are paid pro-rata, meaning in proportion to the overall debt owed in the category. Once all non-exempt assets have been sold and the funds are exhausted, the remaining unsecured debts, which can include medical bills, will be discharged by a judge.
Importantly, if an individual owes money on a collateralized debt balance after bankruptcy proceedings, the creditor can foreclose upon or repossess the item. For this reason, individuals filing for Chapter 7 bankruptcy will need to negotiate individualized agreements with secured creditors if they wish to keep their home or any secured debt items.
Chapter 7 bankruptcy is only available to individuals with a qualifying level of income and debts. Those who do not qualify may still be eligible to file for Chapter 13 bankruptcy.
Chapter 13 Bankruptcy for Medical Debts
Chapter 13 bankruptcy is called “wage earner’s” bankruptcy because it is primarily used by those whose income levels do not meet Chapter 7 eligibility rules. Upon filing Chapter 13, a case trustee will work with the filer to analyze their income, calculate reasonable living expenses, and determine the filer’s ability to pay down a portion of the debt. A payment plan will then be created to pay off debts, which will usually last around 3–5 years. Once the payment plan is complete, the remaining debts will be discharged.
Like Chapter 7, Chapter 13 bankruptcy offers a temporary stay from collection actions, and it can temporarily stop actions like foreclosure upon a house. However, any secured debts must be resolved in order for the debtor to prevent foreclosure or repossession once the bankruptcy procedures are complete.
Speak With New Mexico Bankruptcy Lawyers About Your Options for Resolving Medical Debts
Medical care providers have been increasingly willing to make accommodations for those who hold large debts related to healthcare services. They may be willing to forgive a portion of debt in exchange for speedy payment, or they may be willing to set up a payment plan. Most are now encouraging individuals to open up additional lines of credit, but this can have a detrimental effect on those who are already struggling financially.
Also, know that having your debts discharged is not the same thing as having them repaid. A healthcare facility may refuse non-emergency service based on remaining debts, even if they cannot legally collect on those debts because of orders related to a bankruptcy filing.
Weighing your options between bankruptcy and other avenues for resolving medical debts requires careful consideration, and it helps to have someone with experience and legal knowledge provide counsel. With hundreds of bankruptcy filings and debt relief cases under our belts, New Mexico Financial & Family Law is uniquely positioned to be able to assist you and provide you with information on your options. If you choose to file for bankruptcy or negotiate down your debts, we can represent you during the entire process. Our ultimate goal is to help you find peace of mind and get to a new place where the pressure from outstanding debts is finally gone.
Learn about your options and how we might be able to assist you during a no-risk, confidential case review. Call (505) 503-1637 or contact us online to schedule your appointment now.