Negotiating Medical Debt (continued)
Option 3: Let Them Sue You and Have Assets Declared Exempt
(a) Have your income / assets declared exempt. If you cannot pay your medical debt because you have a limited income, defend yourself in court by asking that your income and other property be declared exempt from the creditor. This way you can avoid paying the debt and filing bankruptcy at the same time. For example, those who live solely on social security (or have a very limited income) can defend such a suit by proving to the judge that their social security check is their only source of income and cannot be taken by creditors to pay unsecured debt.
How do you keep a creditor from taking what little you have? When you are sued and you go to court, tell the judge that you want your income and property declared legally exempt. Make sure that you do not say or sign anything that waives your property exemption rights.
What happens in court? The creditor or collection agency who is suing you will likely try to get you to sign a repayment plan. Do not agree to a repayment agreement that you cannot afford, and again, make very sure that any agreement you do sign does not include a clause where you waive your right to have your income and property state law allows you to declare as exempt from creditors. If you can only afford $15 a month, then tell the judge this -- in fact, prove it to him by bringing as many records of your living expenses to court with you, including bank statements, W-2 pay stubs, utility bills and grocery receipts. DO NOT SIGN A REPAYMENT PLAN AND THEN DEFAULT ON IT AS YOU MIGHT BE VIOLATING A COURT ORDER. IF YOU VIOLATE A COURT ORDER BY NOT PAYING AS AGREED, YOU COULD GO TO JAIL! For example, parents who do not pay their child support as agreed are often arrested and put in jail because they are violating a court order to make payments owed to the custodial parent each month.
If you cannot make payments on the debt, then do not sign a repayment agreement. Instead, ask for your income to be declared exempt. IT IS YOUR RESPONSIBILITY TO TELL THE JUDGE THAT YOU WANT CERTAIN PROPERTY DECLARED EXEMPT. DO NOT WAIT FOR THE JUDGE TO ASK YOU, AS SHE / HE MIGHT NOT DO SO.
A conversation with the judge in court might occur like this:
Judge (to you): Do you admit that you owe Acme Rehab Center $2,500?
You: Yes, your honor, I do owe them $2,500.
Judge: Are you willing to make payments to the plaintiff on this debt?
You: No, your honor, I cannot afford to pay the debt as I have a very limited income. I only earn $220.00 per week after taxes and I do not expect my income to increase in the future because I am permanently disabled. I believe that per state law, my income is exempt and therefore I am asking the court to declare my income exempt at this time.
What property is exempt from creditors and debt collectors in your state? Generally, all states exempt income less than a certain amount to cover basic living expenses to be exempt in order to protect those with low incomes. For example, your state might have legislation on the books that says a creditor can only seize any net income over $250.00 per week. If you make $250 or less per week, your income is exempt. Your state might put a cap on how much of your wages can be garnished, perhaps no more than 15 percent.
In addition, your state might have declared that government benefits, such as social security, welfare, unemployment compensation and veteran's benefits might also be completely or partially exempt. Your state might also have exempted retirement benefits (pensions), child support, worker's compensation, life insurance policies, and personal injury awards. Your state might offer you a homestead exemption that protects a certain amount of the equity in your home from creditors. The cash you have in the bank might be protected, as is your car and other assets, such as your clothing, furniture, work tools and a vehicle.