Medical Bankruptcies

If you're struggling to pay medical bills, consider discharging your medical debt in bankruptcy.

By , Attorney ● University of the Pacific McGeorge School of Law
Updated 2/13/2024

Many people file for bankruptcy when they have trouble paying medical bills. A medical bankruptcy will eliminate debts from doctors, hospitals, ambulances, and other medical providers, along with other qualifying debts from credit card balances, personal loans, leases, utility bills, and more.

If you're hesitant to use bankruptcy to eliminate medical debt, it's understandable. No one wants to file for bankruptcy. But taking action is almost always more beneficial than doing nothing. In this article, we explain bankruptcy and non-bankruptcy options for handling oppressive medical debt.

Can You File for Bankruptcy on Medical Bills?

Yes, you can get rid of or "discharge" medical debt in bankruptcy. People regularly file for bankruptcy after serious illnesses and unexpected accidents, especially when medical bills aren't covered by medical insurance or the patient can't afford a high deductible.

Other Debts Discharged in a Medical Bankruptcy

Medical debt is one of the many obligations that qualify for discharge in bankruptcy. A bankruptcy filing will also eliminate credit card balances, gym memberships, internet and cellphone bills, past-due rent, and more. You can even erase car and house payments if you're willing to return the vehicle or home to the lender.

But bankruptcy doesn't erase everything. Bankruptcy filers typically remain responsible for paying child support and alimony, recently incurred tax debt, and student loans. However, student loans can be discharged in rare instances.

Learn more about the obligations bankruptcy eliminates and nondischargeable debts you'll remain responsible for paying.

Filing a Medical Debt Bankruptcy: What You Should Know

The bankruptcy chapter you use will determine how quickly you erase your medical debt. Most people prefer Chapter 7 because it's fast and doesn't require creditor repayment, but Chapter 13 can solve more financial problems.

Chapter 7 and Medical Debt

Chapter 7 bankruptcy erases medical bills in months without a repayment plan. This chapter works best for people who don't earn much money because a filer's income must be low enough to pass the Chapter 7 means test.

Also, it isn't suited for people who own significant valuable property. Each state decides the property necessary to maintain a home and employment. Any property exceeding the limits isn't "exempt" and gets sold for the benefit of creditors. Learn how your state's bankruptcy exemptions can protect your property.

Example. Judith required back surgery after being hit by an uninsured motorist and was left with $8,000 in medical bills. She met with a bankruptcy lawyer to learn about her options. Because she worked as a cashier, her income was low enough to pass the Chapter 7 means test. She also was able to protect her older car and apartment furnishings.

Example. Emma found herself left with $20,000 in medical debt after her baby was born premature and required an extensive hospital stay. Emma contacted a bankruptcy lawyer, who explained that as CEO of a well-known toy store, she likely earned too much to qualify for Chapter 7. She'd also lose her vacation home in the Bahamas and the RV she purchased in 2022. Emma decided to take a loan against her 401k to pay the medical bill.

Chapter 13 and Medical Debt

You won't complete a medical bankruptcy as quickly using Chapter 13 because it involves paying what you can afford into a three- to five-year Chapter 13 payment plan. But it can help lower how much you pay toward medical debt substantially.

You'll want to consider Chapter 13 if your income is too high to qualify for Chapter 7. Chapter 13 also offers other benefits, such as giving you time to catch up on late payments so you can keep a car or protect a home if you've fallen behind.

Example. Julio's earnings were low enough to qualify for Chapter 7. However, during his extended illness, he fell behind on his house payment and was facing foreclosure. Julio's bankruptcy lawyer explained that because the mortgage wasn't current, he would lose his house in Chapter 7. However, if he filed for Chapter 13, he could pay the mortgage arrears over five years, discharge almost all credit card and medical debt, and save his home. Julio decided to file for Chapter 13.

Example. Siena owned a successful interior design business in a busy metropolis. Finding herself fatigued, she underwent numerous expensive diagnostic tests and, ultimately, chose nontraditional treatment. However, her insurance company refused to cover $50,000 of her expenses. Siena wasn't able to pay the medical bills, and met with a bankruptcy lawyer after a debt collector filed a lawsuit against her. Because of her high earnings, she didn't qualify for Chapter 7, and had to pay 100% of the medical debt over five years in Chapter 13. However, she avoided a lawsuit and was protected from creditors during the repayment period, effectively forcing the creditor into an extended payment plan.

Non-Bankruptcy Options for Medical Debt

Bankruptcy isn't always the right approach, especially if you want to protect good credit. Fortunately, there are ways to resolve medical bills without bankruptcy.

Negotiate a Settlement With the Medical Provider

To start, make sure you've resolved all insurance payment issues. Once you have gotten all of the available insurance coverage, consider negotiating a settlement with the creditor. The provider might waive a percentage if the bill was for uninsured medical costs. Many hospitals and other medical providers routinely waive or discount bills for uninsured patients.

Ask About Medical Assistance Programs

Most hospitals have assistance programs that, if you qualify, will give you free or reduced hospital care, depending on your income level. For instance, the Hospital Care Assurance Program (HCAP) will cover expenses for medically necessary services in some states.

Also, non-profit hospitals with federal tax-exempt status might have to go easier on you and other cash-strapped patients regarding medical billing. Contact your hospital's financial aid counselor for more information and apply for applicable coverage.

To learn more about these and other options, see Managing High Medical Debts.

Do Nothing

Not everyone needs to settle medical debt or file for bankruptcy. Suppose you don't have income or property your creditors can take, and your financial situation isn't going to improve. In that case, you're likely "judgment proof."

People with limited property and income protected from creditors, such as Social Security benefits, are often judgment proof and don't need to file for bankruptcy or settle medical debt.

Example. Henriette, a retired widow, received a medical bill that wasn't covered by her Medicare benefits. Because her income consisted of Social Security benefits only, and she owned nothing other than the furnishings in her rent-assisted apartment, she was judgment proof and immune from collection activities. Instead of paying a lawyer to file bankruptcy on her behalf, Henriette turned off her phone ringer and let the collection calls go to voicemail.

When to File a Medical Bankruptcy

Suppose you can't settle the debt, and it looks as if the creditor may pursue you for payment. You can expect the lender to take steps to collect the debt.

The process will start with telephone calls and late payment notices. Eventually, the medical provider might sue you and get a money judgment—and you'll want to file for bankruptcy before that occurs.

You'll likely lose money and property once a creditor has a money judgment. The creditor can use the money judgment to get a wage garnishment or withdraw money from your bank account with a bank levy. The creditor could also place a lien against your real estate.

Learn about lawsuit judgments in bankruptcy.

Consult a Bankruptcy Lawyer

If you're not judgment proof, and settling your debt with the hospital isn't feasible, talking to a bankruptcy attorney is a good idea. Not only will you learn which bankruptcy chapter will eliminate medical debt and solve other financial challenges, but the sooner you file for bankruptcy, the sooner you'll return to financial stability.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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