For some with overwhelming medical expenses, bankruptcy can offer a solution.
COULD YOU USE A fresh start?
If you’re facing a financial crisis and want another chance — like many others who are grappling with cancer — declaring bankruptcy could be the answer.
Bankruptcy is designed to help restore financial stability, and people affected by cancer are more likely to use it than those in the general population. According to a 2013 study conducted by investigators at Fred Hutchinson Cancer Research Center in Seattle, people with cancer are 2 ½ times more likely to declare bankruptcy than those who have never had the disease.
So, for whom, and under what circumstances, is this a good strategy?
Patients with cancer who face overwhelming debt should consider declaring bankruptcy. Upon the filing of a bankruptcy case, creditors are prohibited by law from collecting debt. This means creditors will no longer be able to call, send letters, garnish wages, repossess property or take any other action to collect money owed.
Freedom from collection attempts can provide peace of mind and a sense of relief, especially for those who are also dealing with a health crisis.
Protection can be offered through a Chapter 7 or a Chapter 13 bankruptcy, and could assist with the financial fallout from cancer.
A Chapter 7 bankruptcy can permanently eliminate a wide variety of debts — often without any repayment. This includes medical and credit card debt, personal and payday loans, cash advances, and vehicle and mortgage deficiencies. In some instances, Chapter 7 wipes out tax debts more than three years old.
In a Chapter 7 case, a trustee will determine if any assets can be sold to repay creditors. However, each state has laws that protect certain property from creditor collection and, in a Chapter 7 bankruptcy, can protect property from being sold by a trustee. In most of these cases, an individual is permitted to keep all his or her possessions — in particular, retirement savings.
A Chapter 13 bankruptcy allows an individual to repay all or a portion of his or her debts with one monthly payment for a period of three to five years. It may reduce the balance required to satisfy a loan, as well as the interest rate — without the risk of property being sold by a trustee. Chapter 13 can assist with managing many types of debt in addition to what Chapter 7 covers: mortgage back payments; vehicle, furniture and student loans; tax debt (old and new); and child support or lease arrears. Generally, an individual is not required to pay all debts back in full.
In a Chapter 13 bankruptcy, individuals often receive asset protection that is not available under Chapter 7. One prime example: the ability to stop a real estate foreclosure. Chapter 13 provides an opportunity to resolve delinquent mortgage payments over a period of three to five years. It can also stop vehicle repossession and even recover a recently repossessed vehicle.
Despite its potential benefits, a bankruptcy filing creates concerns, particularly regarding the effect on an individual’s credit score and ability to obtain credit later. A credit report will typically reflect a Chapter 13 filing for seven years and a Chapter 7 filing for 10 years.
This does not mean that individuals must wait that long to improve their ratings or obtain credit for purchases. A bankruptcy’s impact varies from person to person, so it is important for those who have filed to take action to improve their credit scores. This generally involves obtaining and maintaining payment on a new line of credit, such as a secured credit card or vehicle loan. It is common for filers to obtain new lines of credit after a bankruptcy filing.
It is crucial that individuals who are experiencing financial difficulty seek the advice of a bankruptcy attorney. Waiting too long can have disastrous results. Often, people unnecessarily exhaust resources that can be protected in bankruptcy, such as retirement accounts and savings. Some individuals postpone consulting an attorney because they expect medical or other debts to rise even higher, but that is no reason to wait. A bankruptcy attorney can inform clients of immediately available protections, as well as ways to preserve their rights in the future. If an individual is likely to incur more debt but needs bankruptcy protection now, a Chapter 13 filing may be an ideal option. This allows the opportunity to later change the case to a Chapter 7 and include additional debts to be discharged. In some instances, dismissing a Chapter 13 and refiling another Chapter 13 to include new medical debts may be appropriate.
Bankruptcy attorneys often offer free initial consultations, allowing people to get advice specific to their circumstances. Individuals will be equipped with the information they need to decide whether bankruptcy is the right solution to their financial problems. To aid people affected by cancer, some groups offer free legal services that continue beyond the initial visit. For example, through the nonprofit organization CancerLINC, a large network of attorneys offers legal assistance to patients with cancer and their families who live or receive treatment in the Greater Richmond, Virginia, area.
The National Cancer Legal Services Network (nclsn.org) can point people toward free or discounted legal help. Know Cancer, an online community that provides social and professional support to people affected by the disease, offers information about free or low-cost legal help online at knowcancer.com/ cancer-lawyers. A local bar association may offer a short, discounted discussion with a lawyer, and many communities or counties have legal aid societies that can offer help to those lacking financial resources.
Lawhelp.org also may direct individuals to free or discounted legal advice. If you’re bogged down with cancer debt that is interfering with your financial, medical or emotional well-being, declaring bankruptcy could give you a fresh start.
VERONICA BROWN-MOSELEY is a volunteer with CancerLINC and an attorney with Boleman Law Firm, P.C., in Richmond, Hampton, and Virginia Beach, Virginia.