Discharge of insurance obligation

[URODOC]

I am new to the forum and have a rather esoteric quesiton regarding insurance premium discharge in the event of a successful Chapter 7 filing/discharge.
I am a physician/surgeon and will have to go the Chapter 7 route very soon due mainly to tax issues. I was not able to pay my last quarter malpractice payment ($13,000) due to lack of cash flow. I left private practice at the beginning of Dec. and now am employed by a hospital where the insurance is part of my compensation package.
Would this business debt be honored by the bankruptcy court?
My only worry is that they would refuse to cover me for that quarter which could leave me open to future claims, especially since malpractice claims usually take a few years to surface.

[tobee43]

someone will clime in if i am incorrect, however, as far as my understanding your insurance premium payment is an unsecured debt and as such should be discharged along with other unsecured debt items..

that are certain types of debts which are not dischargeable.....such as debts for most taxes,; debts incurred to pay nondischargeable taxes (in case filed on or after oct 17, 2005);debts that are domestic support obligations....debts for MOST student loans; debts for most fines, penalties, forfeitures, or criminal restitution obligations; debts for personal injuries or death caused by the debtor while operating a motor vehicle, vessel, or aircraft while intoxicated...some debts which were not property listed by you in your petition when and if you file....there are more but this is the "general" drift and they may be exceptions to these general rules...and since the law is fairly complicated, i would really speak with you atty directly with regards to any thing you are not quite certain of.

[tcreegan]

Hi URODOC,

$52,000 a year in malpractice insurance !!!! And people wonder why healthcare costs so much...

I agree w/ tobee, it is unsecured debt that will get discharged in the BK.

Good call on the gap in coverage, definitely something to consider. Hopefully you have a good attorney, besides the coverage issue, getting taxes discharged can be tricky.

Good luck with this, hope the New Year is a fresh start for you!

Tom in Colo

[tobee43]

Hi URODOC,

$52,000 a year in malpractice insurance !!!! And people wonder why healthcare costs so much...

I agree w/ tobee, it is unsecured debt that will get discharged in the BK.

Good call on the gap in coverage, definitely something to consider. Hopefully you have a good attorney, besides the coverage issue, getting taxes discharged can be tricky.

Good luck with this, hope the New Year is a fresh start for you!

Tom in Colo

i think OP needs to get an excellent and maybe "expensive" bk atty......i'm sure there may be other assets involved by OP's other post....

good luck to you!

[despritfreya]

The insurance premium is nothing more than a general unsecured debt that is dischargeable. However, the carrier will deny any coverage should a claim arise. While this is bit "over the top", you may want to list all patients that received services during this period as potential creditors classified as "for info only" with nothing owed - or pay for tail coverage if you can.

I do not know if a claim for pre petition malpractice will be discharged, even if you are a "no asset" case as the potential claimant is unknown and would not have been made aware of your bk. I have never done research on this particular issue but I suspect there is case law on it.

Interestingly I just had a case where the "malpractice" claim was initiated post petition for a pre petition alleged wrong, something my client was not aware of at the time we filed the case. My client had coverage so we added the patient to Schedule F and sent a letter to the patient's attorney to send us a stipulation to lift the stay so that the patient could proceed with seeking recovery from a 3rd party (the insurance provider).

Des.

[tobee43]

The insurance premium is nothing more than a general unsecured debt that is dischargeable. However, the carrier will deny any coverage should a claim arise. While this is bit "over the top", you may want to list all patients that received services during this period as potential creditors classified as "for info only" with nothing owed - or pay for tail coverage if you can.

I do not know if a claim for pre petition malpractice will be discharged, even if you are a "no asset" case as the potential claimant is unknown and would not have been made aware of your bk. I have never done research on this particular issue but I suspect there is case law on it.

Interestingly I just had a case where the "malpractice" claim was initiated post petition for a pre petition alleged wrong, something my client was not aware of at the time we filed the case. My client had coverage so we added the patient to Schedule F and sent a letter to the patient's attorney to send us a stipulation to lift the stay so that the patient could proceed with seeking recovery from a 3rd party (the insurance provider).

Des.

another interesting...or to me anyway, question associated with this type of insurance.....what are the changes of that insurance company EVER re-issuing malpractice insurance to the OP as a result of the discharge of debt???

how would this effect the OP in "general" as far as chances later down the road obtaining malpractice insurance ever again from other carriers or will it have no effect??

[despritfreya]

what are the chances of that insurance company EVER re-issuing malpractice insurance to the OP as a result of the discharge of debt??? How would this effect the OP in "general" as far as chances later down the road obtaining malpractice insurance ever again from other carriers or will it have no effect??

I suspect that the particular carrier will say "no" to any future coverage. In fact, I would not even apply to that carrier as one must disclose whether or not one has been turned down for coverage. As to any other carrier, I suspect if the insurance company discovers the bk (not sure if such a question arises in the context of filling out a medical malpractice insurance application) the premium would be even higher. Coverage for physicians is ridiculously expensive. Many go "naked" or simply do not practice in areas that are deemed "high risk" like obstetrics.

Des.

[URODOC]

Thanks for the great replies.
I have tail coverage which was picked up by my current employer. The question is whether the tail would cover this quarterly payment "gap".
As I have not yet filed I wonder if I could go back to the insurer and pay it off post-discharge; or is this not possible?
In any event, they have not contacted me about the overdue amount ?because of the tail being picked up?

[tobee43]

I suspect that the particular carrier will say "no" to any future coverage. In fact, I would not even apply to that carrier as one must disclose whether or not one has been turned down for coverage. As to any other carrier, I suspect if the insurance company discovers the bk (not sure if such a question arises in the context of filling out a medical malpractice insurance application) the premium would be even higher. Coverage for physicians is ridiculously expensive. Many go "naked" or simply do not practice in areas that are deemed "high risk" like obstetrics.

Des.

thanks des...it really is a difficult position for anyone to have to face. i'm certain.

[tobee43]

Thanks for the great replies.
I have tail coverage which was picked up by my current employer. The question is whether the tail would cover this quarterly payment "gap".
As I have not yet filed I wonder if I could go back to the insurer and pay it off post-discharge; or is this not possible?
In any event, they have not contacted me about the overdue amount ?because of the tail being picked up?

your question poses an even more interesting subject....with reference to preferential payments...however, one would think, that since this insurance is vital to your working it would not qualify as a preferential payment at all...or at least one would hope. yet to come up with 13k right before a bk....i'm not certain how well rec'd that would be by any trustee....

i do know you have been told this in other posts...but chapter 7 may not be the "perfect" path for you....however, a good atty most certainly is wise advise.

[URODOC]

Thanks, the point is probably moot as I am employed now and will never go into private practice again.
I am a knowledgeable person and have spoken with, but not retained yet, a high-power bk attorney who will work with my CPA.
My personal debt is not really an issue; taxes are. We are filing the 2010 return ASAP to see what the liabilities are for this year. They are in constant contact with the IRS agent assigned, and want to see what the best deal can be.
We haven't discussed it, but would chapter 13 be a better way to go?
Since I am employed I am making a lot of money. If the debt were restructured and some of the taxes and penalties reduced, I could pay it off over 5 years even it it meant making a 5k a month payment. However, am getting older and have nothing in pension due to breaking it to pay some of taxes.
Any thoughts?

[tobee43]

the only thoughts i would like to express is this....

i know someone that filed and really had some issues with the irs...actually owning them over 2.3 million....they also had an extremely high income, however, also filed bk for a number of reasons associated with their business.

i think after seeing what he went through the only advise is to make certain the atty and the accountant you are working with are diligent with their efforts, as i know that while a "stay" is automatically put on your debts when filing, this person life somehow via mismanaged advise ended up getting his bank accounts levied. (by the way...they were in fact paying the irs 20k monthly......timely).

i hesitated for a moment to tell you about this, however, i know you are intelligent and self reliant, however, the irs see's $$$ and they have no mercy....so maybe if most of your debt is associated directly with the irs taxes, it may better suit you needs to hire an atty that specializes in working with tax issues as opposed to bk issues...

just a thought.

[URODOC]

Thanks, again.
I was working with my CPA who was interfacing with the IRS.
He was the one who led me to this bk attorney.
One of my thoughts from the start was to get a tax attorney.
At this point nothing has been done. Perhaps when we get a look at the total liabilities I will consult with a tax attorney before making a final move.
Believe me, no patient of mine nowadays hesitates on getting a second opinion when I recommend anything.
I am not averse to getting a number of opinions regarding my situation if need be.
Sound reasonable?

[tobee43]

Thanks, again.
I was working with my CPA who was interfacing with the IRS.
He was the one who led me to this bk attorney.
One of my thoughts from the start was to get a tax attorney.
At this point nothing has been done. Perhaps when we get a look at the total liabilities I will consult with a tax attorney before making a final move.
Believe me, no patient of mine nowadays hesitates on getting a second opinion when I recommend anything.
I am not averse to getting a number of opinions regarding my situation if need be.
Sound reasonable?

absolutely....however, ...do not become a money bucket for the atty's or accountants...please proceed carefully.....it's difficult to tell you, act poor!! however, once some are aware of your assets, just make certain that you listen to yourself and your instincts about whom it is you want covering your butt. sometimes one can be too logical...as ridiculous as that may sound.

the more information you receive the more you can see consistencies with information...or at least that has been the case i have found. we personally ...i don't even want to say how many atty's we interviewed before hiring one...and i worked in the field...but was extremely cautious.

best of luck, i understand this is extremely stressful...but continue to be mindful and take in as much information as you can!!

make certain you keep us posted!!!

[tobee43]

oh!!! and please do not use any 401's to pay anyone else....that money is protected in a bk...