Yes, you can file bankruptcy on medical bills. Medical bills are unsecured debts included in bankruptcy. A common reason people file for bankruptcy relief is to get rid of medical bills.
Medical hardship is prevalent in the United States especially for those ages 18-64 and those without healthcare according to a study titled, “Prevalence and Correlates of Medical Financial Hardship in the USA” from August, 2019. This is primarily due to the high patient out-of-pocket (OOP) spending for medical care driven by the rise of high deductible plans.
However, a medical bankruptcy may not be the best debt-relief solution if the only reason you are filing for Chapter 7 or Chapter 13 is that you have medical bills you cannot pay. Let’s explore medical bills and bankruptcy in greater detail.
Medical Debts in Bankruptcy
Unsecured debts are debts that you owe, which are not secured by collateral. Generally, medical bills fall into this category of debt. Also included in this category of debts are credit card debts, personal loans, student loans, alimony, most taxes, old utility bills, and child support payments.
Not all unsecured debts are eligible for a discharge. For example, you cannot get rid of alimony and child support by filing bankruptcy. Most taxes and student loans are also not eligible for discharge in bankruptcy. However, medical bills are generally always dischargeable in bankruptcy.
Filing Chapter 7 Bankruptcy to Get Rid of Medical Bills
When you file a Chapter 7 bankruptcy case, most unsecured debts are discharged. A creditor cannot collect a debt that is discharged in bankruptcy. The legal liability to repay the debt goes away. The creditor cannot call you, send collection letters, file a debt collection lawsuit, report the debt on your credit report as delinquent, or take any other actions to try to force you to repay the debt.
Most Chapter 7 cases filed in the United States are no-asset Chapter 7 cases. A no-asset Chapter 7 case is a case in which the debtor does not lose any property. No-asset Chapter 7 cases take about four to six months to complete.
However, in some Chapter 7 cases, a debtor (the person who files for bankruptcy relief) could lose some of his or her property. The Chapter 7 trustee sells the property and uses the money to pay the debtor’s unsecured debts.
Therefore, before filing a Chapter 7 bankruptcy case, it is important to consider whether any of your property is at risk of being sold through bankruptcy. Bankruptcy exemptions protect some of your property from being sold by the Chapter 7 trustee. However, if you have substantial equity in your home, vehicle, and other personal assets, you may not want to file a Chapter 7 for medical bills.
Chapter 13 Bankruptcy and Medical Bills
A Chapter 13 bankruptcy case is a repayment plan. You enter a three-year to five-year bankruptcy plan to repay your debts. In most cases, a Chapter 13 bankruptcy plan only pays a small percentage of the money owed to unsecured creditors. When the Chapter 13 plan is complete, any remaining amounts owed to unsecured creditors are discharged, provided that the debt is eligible for a discharge in bankruptcy.
Therefore, if you owe medical bills, your creditors will receive a percentage of the money you owe them for the medical debts. Once you complete your bankruptcy plan and you receive your discharge, your legal liability to repay the remaining amount owed on the medical bills is eliminated.
A Chapter 13 bankruptcy case is a good option for individuals who do not meet the income qualifications for filing under Chapter 7. This chapter of bankruptcy may also be a good choice for a person who owns property that might be at risk of being sold in Chapter 7, has non-dischargeable debts (i.e. alimony, taxes, etc.), or is behind in their mortgage payments and car loan payments.
The downside of Chapter 13 is that you are in a bankruptcy repayment plan for a long time. Most Chapter 13 plans are 60-month plans. If you fail to complete the Chapter 13 plan, you do not receive a discharge, and you continue to owe all the debts you owed before you filed for bankruptcy relief.
Are There Other Options to Repay Medical Debts?
If the only debts that you are struggling to pay are medical debts, there could be other options for debt relief. For example, a debt relief company or you could try settling medical debt and getting on a repayment plan with your creditors that is affordable for your income and expenses. You may also be able to negotiate a one-time lump sum payment to satisfy the debt that is lower than the amount you owe. There are also debt consolidation options and other options for repaying medical bills other than filing a Chapter 7 or Chapter 13 bankruptcy case.
Before you file bankruptcy for medical debts, it is wise to explore all options for dealing with medical bills you cannot pay. Ascend can help you compare debt-relief options to determine what options work best for your situation. Let’s get started now to find a way to get rid of your medical debts.