Can You File Bankruptcy on Medical Bills?

April 25th, 2022

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Medical Debt message on torn paper laying on a line of hundred dollar bills

Medical expenses are a big concern for many Americans. Many people struggle to pay off medical debt, and are wondering if there is a way to get out from behind the costs of an illness or injury. Here is some information that you can use to decide whether a bankruptcy is the right choice to resolve your medical debt.

A medical emergency can set your family back not just physically and emotionally, but also financially. One study found that nearly two-thirds of all bankruptcies were tied to medical issues – either because of medical bills directly or time off work for recovery. While many of those surveyed also had other reasons to file, they may have been able to make ends meet had it not been for an unexpected accident or illness. In the wake of a medical event, you need to know whether bankruptcy is an option for you and your family.

Does Bankruptcy Clear Medical Debt?

There isn’t a special case type for “medical bankruptcy.” However, when you file a Chapter 7 or Chapter 13 bankruptcy, your medical bills will be included in any discharge of debts. Successfully completing either type of bankruptcy could eliminate most of your medical debts.

Medical Debt in Chapter 7 Bankruptcy

If your medical condition has left you unable to work and your family has used up your assets to pay for your care, you may be a good candidate for a Chapter 7 bankruptcy. Chapter 7 discharges most unsecured debts, including hospital bills, medical billing, and other healthcare related expenses. It is available to individuals and couples who make less than the state’s median income. A Chapter 7 bankruptcy satisfies debtors by liquidating all non-exempt property and dividing it up among all your creditors. However, federal and Connecticut bankruptcy exemptions can protect all or a significant portion of your assets, which you get to keep even after the bankruptcy is over. If you qualify and file for a Chapter 7 bankruptcy, all your dischargeable debts will be eliminated at the end of the case. From your perspective medical debt may seem catastrophic and insurmountable. From a bankruptcy perspective, however, medical debt is nothing special. It has the lowest priority and can be discharged just like credit card debt.

Chapter 13 Payment Plans for Medical Debt

If you are still working or have assets you want to protect, it may be wiser to file a Chapter 13 bankruptcy. Your medical bills will be included in your Chapter 13 payment plan, which will give you three to five years to pay off all your debts. Any qualifying debt (like medical debts) that cannot be paid within the designated time is discharged. However, unlike a Chapter 7, a Chapter 13 bankruptcy requires you to keep up on your payments. If your medical condition is likely to keep you from working, this isn’t the best option for you.

How a Medical Bankruptcy Can Help You Start Fresh

If most of your family’s debt is because of medical bills, filing for bankruptcy can help you reset, and start fresh. Filing for bankruptcy will:

Trigger an automatic stay on all medical debt collection
Redirect your doctors’ billing and collections companies to your bankruptcy attorney
Create a manageable payment plan for all your debts and expenses under a Chapter 13
Discharge unpaid medical bills and other unsecured debts (like credit cards used to pay household expenses during your injury)
Remove unpaid balances and delinquencies from your credit report

What to Consider in Deciding Whether to File Bankruptcy on Medical Bills

Not every family who owes medical bills needs to head to bankruptcy court. Before you decide to file for bankruptcy, you should carefully review your financial circumstances with a bankruptcy attorney. They will help you consider:

Whether other debts you owe are dischargeable
If your home or important assets will be protected during bankruptcy
The financial benefit of filing a bankruptcy
The impact of bankruptcy on your credit score
Whether bankruptcy proceedings will interfere with your healthcare (although doctors who cannot get paid may stop treatments, the Bankruptcy Code specifically allows you to pay those with whom you intend to continue treatment (although it will not be a legal obligation )
Whether to negotiate with medical providers for payment plans

At Lawrence & Jurkiewicz, we focus our practice on helping people. We know it’s not your fault that you got sick or injured. We will meet with you to review your financial circumstances and help you decide whether to file for bankruptcy for medical debts. We want to help you get a start fresh, without past medical debts weighing you down. Please contact us for a free consultation.