If you’re struggling to make ends meet while dealing with medical bills, bankruptcy can provide relief. Medical debt and loss of income for medical reasons plays a role in more than 60% of personal bankruptcy filings.
Written by Attorney Andrea Wimmer.
Updated October 2, 2020
Sometimes the road to bankruptcy court is full of twists and turns and making the decision to file bankruptcy is not easy. Other times, it seems almost like you don’t even have a choice. When you get a $1.1 million hospital bill after beating COVID-19, for example. Or when every single one of your medical providers bills you several thousand dollars even though you really only had one medical treatment.
So-called medical bankruptcies have many different causes. From a lack of sufficient health insurance coverage, to the unexpected need for expensive medical care or an inability to pay for medical expenses with anything other than a credit card due to a lack of disposable income.
If you’re struggling to make ends meet while providing yourself or your family with the healthcare they need, know that you’re not alone. While the specific reason people file bankruptcy is different for each person, both medical debt and loss of income for medical reasons plays a role in more than 60% of personal bankruptcy filings.That’s why everyone knows what’s meant by “medical bankruptcy” even though there actually is no such thing in bankruptcy law.
Getting a Fresh Start Through Bankruptcy - The Basics
Most people file one of two types of bankruptcy: Chapter 7 or Chapter 13 bankruptcy. They both take into account the filer’s healthcare costs.
Chapter 7 bankruptcy is by far the most common type of bankruptcy. It’s sometimes called a “liquidation bankruptcy” because under the bankruptcy law, the filer agrees to give up certain unprotected property in exchange for a fresh start. But, most people who file Chapter 7 bankruptcy are able to keep all of their belongings using bankruptcy exemptions.
Since Chapter 7 is only available to people who don’t make too much money and pass the means test, there’s no repayment plan. Instead, the bankruptcy discharge wipes out most debt in as little as 3 - 4 months.
Chapter 13 bankruptcy does involve a repayment plan and is often used to catch up on real estate loans and prevent a foreclosure. Filers make payments - based on their monthly income and expenses - in exchange for protection from creditors. Once the payment plan has been completed, the bankruptcy discharge wipes out all remaining debts.
What Type of Debt Is Medical Debt?
In a bankruptcy case, different types of debt are treated differently. There are secured debts, which are debts that are backed by property. The most common secured debts are car loans. To keep the property connected to the secured debt, you generally have to agree to keep paying the lender.
The second type of debt is unsecured debt. Unsecured debt is not connected to a specific piece of property. Credit cards, personal loans, student loans, and medical debt are the most common examples of unsecured debts.
Then there are priority debts. Unsecured creditors that are owed priority debts receive special treatment in a bankruptcy case. Examples include tax debts, child support, and alimony. Priority debts are not dischargeable in bankruptcy.
You Can Eliminate Medical Debt Through Bankruptcy
Medical debt incurred before people file bankruptcy is dischargeable. That even includes any medical bills you don't get until after the bankruptcy case is filed. As long as the medical treatment happened before filing, your bankruptcy discharge will get rid of them.
A Note About Your Credit Score
If you’ve been current with all of your monthly payments, filing bankruptcy may seem especially scary. Don’t let worry about the effect of a bankruptcy on your credit report, or the impact of a bankruptcy filing on your credit score, keep you from getting the relief you need. Especially if the amount of medical debt is much higher than your total debt, your credit report will suffer no matter what.
While medical providers may not be as quick to submit information for your credit report, eventually they will. If you’re unable to pay your medical bills, this means they’ll start impacting your credit score sooner or later. Plus, even medical providers will eventually get a law firm involved to collect the debt from you. From there, a wage garnishment may not be far off.
Of course, filing bankruptcy is not right for everyone or every situation. If you’re not quite sure what to do, consider signing up for a credit counseling session. They are free and will provide you with an overview of your debt relief options. Plus, keep in mind that most bankruptcy attorneys offer free consultations. Either or both of these options can help clarify the best path forward.
You can get rid of medical bills in Chapter 7 and Chapter 13 bankruptcy. What type of bankruptcy is right for you (if any) depends on your financial situation as a whole. So, keep doing what you’re already doing and research your options. If you’re worried about filing bankruptcy without professional help, schedule a free consultation with a local bankruptcy lawyer to get legal advice. If you can’t afford to hire a lawyer, you may be able to use Upsolve’s free web tool to file bankruptcy. Either way, remember, you’re not alone and you can get through this.
- American Journal of Public Health. (2020, March). Medical Bankruptcy: Still Common Despite the Affordable Care Act. 109, no. 3 . Retrieved October 1, 2020, from https://ajph.aphapublications.org/doi/10.2105/AJPH.2018.304901
- U.S. Courts. (2020, July). 2019-2020 Bankruptcy Filings. Bankruptcy Filings Fall 11.8% for Year Ending June 30, 2020. Retrieved August 11, 2020, from https://www.uscourts.gov/news/2020/07/29/bankruptcy-filings-fall-118-percent-year-ending-june-30