Medical Debt and Bankruptcy

Medical Debt: The Leading Cause of Bankruptcy

Medical debt is the leading cause of personal bankruptcy in the United States. Even people with health insurance can face overwhelming medical bills from:

• High deductibles and out-of-pocket maximums
• Services not covered by insurance
• Out-of-network emergency care
• Denied insurance claims
• Lost income during illness or recovery
• Chronic conditions requiring ongoing treatment
• Catastrophic events like cancer, heart attacks, or serious accidents

Types of Medical Debt Discharged in Bankruptcy

Bankruptcy can eliminate virtually all types of medical debt, including:

Hospital Bills

• Emergency room charges
• Inpatient hospital stays
• Outpatient procedures
• Surgical facility fees
• Hospital room and board

Doctor and Specialist Bills

• Physician services
• Surgeon fees
• Anesthesiologist charges
• Specialist consultations
• Follow-up care

Other Medical Expenses

• Ambulance services
• Medical testing and lab work
• X-rays, MRIs, CT scans, and other imaging
• Physical therapy
• Mental health treatment
• Dental work
• Prescription medications (unpaid balances)
• Medical equipment and supplies
• Nursing care

Medical Debt in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the fastest way to eliminate medical debt. The process takes 3-4 months from filing to discharge, and medical debt is treated as unsecured, non-priority debt - meaning it's completely dischargeable without payment.

How Chapter 7 Handles Medical Debt

1. File bankruptcy petition - List all medical debts on your bankruptcy schedules
2. Automatic stay takes effect - Collection calls, lawsuits, and wage garnishment stop immediately
3. 341 meeting of creditors - Held about 30-40 days after filing; brief meeting with trustee
4. Discharge granted - Usually 60-90 days after 341 meeting; all medical debt is eliminated
5. You owe nothing - Medical creditors cannot attempt to collect discharged debt

Benefits of Chapter 7 for Medical Debt

• Complete elimination - You pay nothing on medical debt (unless you have non-exempt assets)
• Fast relief - Debt is discharged in 3-4 months
• Stops collections - Immediate halt to calls, letters, and lawsuits
• Prevents judgments - Stops creditors from obtaining judgments and garnishing wages
• Fresh start - Begin rebuilding finances without crushing medical debt

Medical Debt in Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to repay medical debt through a 3-5 year payment plan based on what you can afford, not what you owe. Most people pay only a small percentage of their medical debt, and the rest is discharged.

How Chapter 13 Handles Medical Debt

Medical debt is treated as general unsecured debt in Chapter 13, which means:

• It's paid last, after secured debts (mortgage, car) and priority debts (taxes, child support)
• You pay only what's left from your disposable income after essential expenses
• Most plans pay 0% to 25% of medical debt
• Remaining balance is discharged at the end of the plan

When Chapter 13 is Better for Medical Debt

Consider Chapter 13 if you:

• Have other debts you need to catch up on (mortgage, car payments)
• Have income above the Chapter 7 means test limit
• Own property with non-exempt equity you want to protect
• Want to spread payments over time rather than pay attorney fees upfront

Medical Bills Already in Collections

Medical debt that's been sent to collections or sold to collection agencies is still dischargeable in bankruptcy. It doesn't matter if:

• The debt has been in collections for years
• Multiple collection agencies have contacted you
• The original creditor sold the debt
• The collection agency obtained a judgment against you
• Your wages are being garnished for medical debt

All medical debt is dischargeable, regardless of collection status.

Medical Debt Lawsuits and Judgments

If a medical creditor has sued you or obtained a judgment, bankruptcy can still help:

Before Judgment

Filing bankruptcy before a judgment is entered stops the lawsuit through the automatic stay. The lawsuit is dismissed or put on hold, and the debt is eventually discharged.

After Judgment

Even if the medical creditor has already obtained a judgment against you, bankruptcy can:

• Discharge the underlying medical debt
• Stop wage garnishment immediately
• Stop bank account levies
• Prevent property liens in most cases (except in some states where judgment liens on homes require separate lien avoidance)

Medical Debt on Credit Cards

If you put medical expenses on credit cards, that debt is still dischargeable. However, there are timing considerations:

Recent Medical Charges on Credit Cards

If you charged medical expenses on credit cards shortly before filing bankruptcy, the credit card company might object to discharge if:

• You charged more than $800 on luxury goods or services within 90 days of filing
• You took cash advances totaling more than $1,100 within 70 days of filing

Medical expenses are NOT considered luxury goods. Necessary medical care charged to credit cards is generally not considered fraud, even if charged shortly before bankruptcy.

Best Practice

Wait at least 90 days after charging significant medical expenses before filing bankruptcy to avoid any potential objections, though medical necessity is a strong defense.

Can Medical Providers Refuse Future Treatment?

This is a common concern, but the reality is:

Emergency Care

Hospitals and emergency rooms cannot refuse to treat you in an emergency, regardless of past bankruptcy or unpaid bills. Federal law (EMTALA) requires emergency rooms to stabilize and treat emergency conditions.

Non-Emergency Care

Doctors and medical providers can choose whether to accept you as a patient. Some may:

• Continue treating you normally (most common)
• Require upfront payment or payment plans for future services
• Decline to accept you as a new patient (less common)

Practical reality: Most medical providers continue treatment, especially if you establish a payment arrangement for future services. Many providers understand that bankruptcy was necessary and prefer a patient who can now afford care over unpaid bills.

Ongoing Treatment During Bankruptcy

If you're receiving ongoing treatment (cancer, dialysis, chronic conditions), communicate with your providers:

• Explain your bankruptcy is for past debts, not future services
• Offer to pay for new services upfront or through payment plans
• Work with hospital financial assistance programs
• Ensure insurance is active and utilized

Alternatives to Bankruptcy for Medical Debt

Before filing bankruptcy solely for medical debt, consider these alternatives:

Hospital Financial Assistance Programs

Most hospitals have charity care programs that can reduce or eliminate bills based on income. Under the Affordable Care Act, non-profit hospitals must have financial assistance policies. Contact the hospital's billing department to apply.

Negotiate a Settlement

Medical providers and collection agencies often settle for 30-50% of the debt, especially for older debts. Get any settlement in writing before paying.

Payment Plans

Hospitals often offer interest-free payment plans. This can work if the debt is manageable and you have steady income.

Medical Debt Forgiveness Programs

Some charities and organizations help pay medical debt. Search for programs specific to your condition or location.

When Bankruptcy Makes More Sense

Consider bankruptcy instead of alternatives if:

• Medical debt exceeds $10,000 and you have no way to pay it
• You're facing wage garnishment or lawsuits
• You have other debts in addition to medical bills
• Negotiated payment plans would take years to pay off
• Your income is limited and unlikely to increase significantly

Medical Debt and Credit Impact

Medical debt affects your credit, but bankruptcy can be the better option:

Medical Debt on Credit Reports

• Unpaid medical bills in collections hurt your credit score significantly
• Medical collections remain on your report for 7 years
• Recent scoring models reduce the impact of medical collections
• Many lenders view medical debt more sympathetically than other debt

Bankruptcy vs. Unpaid Medical Debt

While bankruptcy does impact your credit, it's often better than years of unpaid medical collections:

Factor	Unpaid Medical Debt	Bankruptcy
Time on credit report	7 years per collection	7-10 years
Credit score impact	Ongoing damage from multiple collections	Initial drop, then steady improvement
Debt resolution	Remains until paid or settled	Completely discharged
Future lending	Difficult with active collections	Possible within 1-2 years with rebuilding

Steps to File Bankruptcy for Medical Debt

Step 1: Gather Medical Bills and Documentation

Collect all medical bills, collection notices, and related documentation:

• Hospital bills and statements
• Doctor and specialist bills
• Collection agency letters
• Judgments or lawsuit papers
• Insurance explanations of benefits (EOB)

Step 2: Consult a Bankruptcy Attorney

Most bankruptcy attorneys offer free consultations. They can:

• Determine if bankruptcy is the best option
• Advise whether Chapter 7 or Chapter 13 is better
• Explain how bankruptcy will affect your specific situation
• Provide cost estimates and payment plan options

Step 3: Complete Credit Counseling

Before filing, you must complete credit counseling from an approved agency (usually takes 1 hour online and costs about $25-50).

Step 4: File Bankruptcy Petition

Your attorney files your bankruptcy petition listing all debts, including medical debt. The automatic stay immediately stops collections.

Step 5: Complete the Bankruptcy Process

Attend the 341 meeting of creditors, complete financial management course, and receive your discharge eliminating medical debt.

Frequently Asked Questions

Will I lose my health insurance if I file bankruptcy?

No. Bankruptcy does not affect your health insurance coverage. If you have employer-provided insurance, Medicaid, Medicare, or marketplace insurance, it continues unchanged.

Can I file bankruptcy for just medical debt?

Yes. You can file bankruptcy even if medical debt is your only debt. However, if you have other debts, include them all to get a complete fresh start.

What if I need medical treatment while in bankruptcy?

Debts incurred after filing bankruptcy are not discharged in that bankruptcy. Pay new medical bills as you go, use insurance, and work with providers on payment plans for new expenses.

Can I pick which medical debts to include in bankruptcy?

No. You must list all debts in bankruptcy. However, you can voluntarily repay any creditor after bankruptcy if you choose (though you're not legally required to do so).

How long do I have to wait to file bankruptcy after incurring medical debt?

There's no waiting period. You can file bankruptcy immediately after incurring medical debt. The debt is fully dischargeable regardless of how recent it is.

Related Resources