Medical Bills and Bankruptcy

Overwhelming medical bills can happen to anyone. An unexpected illness or a serious accident can leave you facing steep co-pays, deductibles, and co-insurance costs that simply won’t go away on their own. If you can’t pay your hospital or doctor’s bills, it may be important to understand how medical bills and bankruptcy relate. That way you can make an informed decision about whether bankruptcy could be the best way out of medical debt.

Can Medical Bills Go to Collections?

Even though medical care is necessary, the costs can add up quickly. Insurance denials can compound these issues, surprising you with financial obligations you thought would be paid for. When medical bills go unpaid, they accrue interest, late penalties, and other fees. Efforts to collect unpaid medical debts can be every bit as aggressive as other forms of debt. According to the Consumer Financial Protection Bureau (CFBP)’s 2023 Annual Report, in 2022, medical debt collections efforts accounted for 15% of all agency complaints. In Connecticut, between 13% and 20% of households cannot afford their medical debt. Medical providers routinely turn over their accounts payable to bill collectors and collections lawyers who will call, send demand letters, and file lawsuits against patients to get their medical bills paid.

Can Medical Bills Affect Credit Scores?

One piece of good news for Connecticut residents is that, as of this year, in-state medical debt can’t affect credit scores. On May 9, 2024, Connecticut Governor Ned Lamont signed “An Act Concerning the Reporting of Medical Debt.” (The CFBP proposed a similar rule on the national level in June 2024.) The Connecticut law says that as of July 1, 2024, state-licensed health care or professional service companies – and the collections companies they hire – are prohibited from reporting medical debt to the credit rating agencies. “Medial debt” is defined broadly to include a variety of healthcare goods and services. Any medical debt mistakenly reported to the credit reporting companies is void. That means that if you fall behind on your Connecticut medical bills, it won’t hurt your credit score, or your ability to obtain new financing in the future. However, this doesn’t apply to most medical bills paid for with a credit card.

Can Bankruptcy Help with Medical Bills?

Often, if you aren’t able to pay your medical bills, you may have other debts that are weighing you down as well. Often, substantial and unexpected medical bills come with temporary or permanent disability, which in turn means less income to pay your regular bills. Over time, this could lead you to consider bankruptcy.

Unpaid medical bills are a form of unsecured debt. That means you don’t offer any property as collateral to secure repayment. Other forms of unsecured debt include credit cards, utility bills, and most personal loans. Unsecured debts, including medical bills, enjoy no special protections in the federal bankruptcy courts. To get any protection, creditors need to get a collections judgment or a lien against the debtor’s property. Until that happens, it can be discharged through a Chapter 7 liquidation bankruptcy, or paid off over time in a Chapter 13 Wage Earners Reorganization. As unsecured creditors, medical providers like doctors and hospitals are lowest on the priority list for repayment. That means that medical debt can, and often is discharged in bankruptcy.

Can You Pay Your Doctor Before Other Creditors in Bankruptcy?

You might be reluctant to write off your medical debts. It might be important to you that your family doctor gets paid, or you may feel like the services you received were special, maybe life-saving. You may be worried that you will lose your doctor-patient relationship if you discharge their debts.

It is important that you don’t allow your family finances to go down with a debt you cannot afford. Remember that, often, medical collections companies buy doctors’ debts and then try to collect from their patients on their behalf. That means it is not the doctor who is losing out, but the collections company.

It is important to remember that you can’t pick and choose among your creditors during a bankruptcy. Unsecured creditors that don’t have preferred status under the bankruptcy code will all be treated the same by the bankruptcy trustee. Preferential payments made in the days leading up to filing for bankruptcy can be “clawed back” from creditors to make sure everyone is treated fairly. That means often unsecured creditors receive substantially less than the full amount due.

But that doesn’t mean you must let your doctor come up short. If your medical providers have not sold their debt to a collections company and you want to make sure their balance is paid in full, you can do that after the bankruptcy is final. Federal bankruptcy law does allow you to pay individual debts of your choosing, even after your legal obligation to do so is discharged. So, there may be ways to preserve a doctor-patient relationship, and make sure your doctor gets paid after your other debts have been discharged.

Get Help Resolving Unpaid Medical Debt through Bankruptcy

The bankruptcy lawyers at Lawrence & Jurkiewicz, LLC represent clients throughout the greater Hartford area and the Litchfield County area. We can help Connecticut residents consider their financial situation and identify options to address unpaid medical debt, and guide them through the process to discharge those debts in bankruptcy. We know how important maintaining a good doctor-patient relationship can be. We don’t want fear of losing your medical provider to stand between you and your financial freedom. We will meet with you to review your financial circumstances and help you make the right decision for you and your family. Please call (860) 264-1551 or contact us for a free consultation.