I have great credit but a huge medical bill. Should I file for bankruptcy?

You can wipe out medical debt in bankruptcy but consider other nonbankruptcy options first.

If you’re having trouble paying for a large medical bill and are thinking about filing for bankruptcy, consider looking into other options first—especially if you have good credit.

It’s true that filing for bankruptcy will likely cause your credit to dip (but it might not last as long as you think). However, if you can't pay the medical bill and you don’t file for bankruptcy, you might find yourself in an even worse position.

Here’s what you can expect.

First, you'll start receiving late-payment notices. Eventually, the medical provider might sue you and get a money judgment. Then you could face wage garnishment, a bank levy, or the placement of a lien against your real estate—and you might not be able to reverse some of the consequences in bankruptcy.

Non-Bankruptcy Options for Medical Debt

If you have good credit, you might be able to resolve your large medical bill by taking advantage of one of these options.

  • 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. If the bill was for uninsured medical costs, then the medical provider might waive a percentage of the bill. Many hospitals and other medical providers routinely waive or discount bills for uninsured patients.
  • Ask about assistance programs. Most hospitals have assistance programs that, if you qualify, will give you free or reduced hospital care, depending on your level of income. For instance, in some states, the Hospital Care Assurance Program (HCAP) will cover expenses for medically necessary services. Also, non-profit hospitals that enjoy federal tax-exempt status might have to go easier on you and other cash-strapped patients when it comes to medical billing. This might apply to you. You should contact your hospital's financial aid counselor to find out more information and apply for applicable coverage.

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

Medical Debt in Bankruptcy

If you can’t settle the debt and it looks as if the creditor may pursue you for payment, then your good credit is going to take a hit anyway because a collection action will show up on your credit report. Also, if the provider sues you and gets a judgment, it can garnish your wages or take other collection action.

Not only can filing for bankruptcy wipe out your debt, but the sooner you file, the sooner you’ll be back on the road to financial recovery.

  • Chapter 7 and medical debt. If you don’t earn much money and have assets with little or no equity, then a Chapter 7 bankruptcy might be a good choice for you. You don’t have to have a certain number of debts. You can file for Chapter 7 on a single, but substantial, debt. Medical debt, like most other unsecured debt (debt that isn’t secured by collateral), will be wiped out in Chapter 7 bankruptcy.
  • Chapter 13 and medical debt. If you don't qualify for Chapter 7 bankruptcy, or you own assets that you might lose in a Chapter 7 bankruptcy, you can file for Chapter 13 bankruptcy. In Chapter 13, you’ll pay back the portion of the medical debt you can afford through your repayment plan. The court will discharge (wipe out) the remainder at the end of the case.

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