If you’ve been in practice long enough, chances are you’ve had more than one bankruptcy notice land on your desk.
The notice informs that one of your patients has filed for bankruptcy. As a listed creditor you are to cease any attempts at collecting outstanding debt at once.
That’s right: no more phone calls, letters, or verbal requests for repayment of the debt.
It’s unfortunate when someone has to go into bankruptcy because it has the potential to affect every aspect of that persons’ life.
But that aside, this patient owes you money. Perhaps it’s for a deductible, co-insurance, or even copays.
The total outstanding balance is close to $495.00. But you no longer can even try to collect what’s right fully yours.
So now what? What are you supposed to do? After all, you can’t stay in business if you don’t get paid for the work you do!
But before I answer this question, let’s take a look at what it means when someone has filed for bankruptcy.
Bankruptcies, or course, get filed by people and businesses alike. At the most basic level filing for bankruptcy simply means that the business or the individual can no longer pay their debts.
At the individual level, there are two types of bankruptcies you’ll come across, chapter 7 and chapter 13.
Chapter 7, the “Liquidation Bankruptcy”
- This type of bankruptcy is also known as liquidation bankruptcy. By filing for bankruptcy, the person can get bankruptcy protection, which means that any unsecured debt (medical bills, credit card debt, etc.) may get canceled (discharged) after existing nonexempt assets are sold to repay creditors. If there is nothing to sell, creditors will not get anything.
- To file for chapter 7 bankruptcy, the person must have little or no disposable income. If there is too much income, the individual would have to file for chapter 13 bankruptcy protection.
- Chapter 7 bankruptcy is utilized most often when the person has little income or assets to repay unsecured debts, such as credit cards and medical bills.
Chapter 13, the “Reorganization Bankruptcy”
- Chapter 13 is also known as a reorganization bankruptcy, utilized by individuals with regular incomes, including small businesses operating as “sole proprietors.”
- Individuals must show that they qualify by documenting regular and stable income.
- There must be adequate income to repay all or part of the outstanding debt through a repayment plan, lasting from three to five years.
So now you know the difference between the two types of bankruptcies and their impact on you… You’re forced to stop all attempts to collect the outstanding debt. Because if you don’t, you’d be in violation of the law, potentially facing fines and legal costs.
The “Proof of Claim”
So what, if anything, can you do after someone has filed for bankruptcy protection?
Often not that much! However, you can file a “Proof of Claim” as outlined in the court notice.
It’s a written statement informing the bankruptcy court of your claim to receive a pay out from the sale of assets.
How do you do that?
- You must submit a formal document, bankruptcy Form 10
- You can get the form from the U.S. Courts website at uscourts.gov
- File the claim within the indicated time frame.
But let’s be realistic…
If it’s a chapter 7 bankruptcy, it’s pretty likely you won’t see much of anything regarding repayment of what the person owes you.
However, if your patient filed for Chapter 13, you stand a better chance of getting paid on the outstanding balance, as long as you file a proof of claim with the court.
Even though there may be many creditors with a valid claim, many don’t file a Proof of Claim. Therefore your chance of recovering at least part of the outstanding debt increases.
Regardless if you decide to file a proof of claim or decide against it, there is another step to consider.
Take a good look at your current process for getting money from patients.
- Are you collecting all monies up front?
- Or are you allowing patients to pay later?
When someone can’t pay at the time of service, it’s natural to want to help out and give them the benefit of the doubt.
But often, it ends up working against you. And without a doubt, there is no better time to collect payment than at the time of service, before the appointment.
Maybe you need to rethink how you do things in your office:
- Perhaps you need to implement stricter financial policies.
- Retrain your front desk staff how to ask for and get money at the time of service.
- Immediately address problem patients who just don’t
Is any of this preventable?
No, not entirely. However, there are preventive steps you can take so that any losses will be minimal.
What are your experiences with patient bankruptcies? What have you done in response to them?
Please share your experiences with us, so we can all learn from each other.
By Johanna Hofmann, MBA; regular contributor to the NPBusiness blog.