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You may be overwhelmed with medical bills and wonder whether these can be discharged with bankruptcy. Furthermore, you may be wondering how each type of bankruptcy deals with medical bills, credit cards and student loans. This is a common question. This article covers each type thoroughly. In addition, it provides a calculator to compare different bankruptcy, debt settlement, debt management and debt payoff planning options.

Can You File Bankruptcy On Medical Bills?

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 most prevalent for those ages 18-64 and without healthcare, according to the August 2019 study, “Prevalence and Correlates of Medical Financial Hardship in the USA.” This is due to the rise of high deductible plans and high out-of-pocket (OOP) medical expenses for patients. 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 because of medical bills. Let’s explore medical bills and bankruptcy in greater detail.

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 are credit card debts, personal loans, student loans, alimony, most taxes, old utility bills, and child support payments. However, 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. 

Important note: You must qualify for Chapter 7 bankruptcy, which is the more common consumer bankruptcy. To see whether you qualify, take the Chapter 7 bankruptcy qualification estimate calculator based on the US bankruptcy forms below to estimate whether you may qualify for a Chapter 7 bankruptcy to eliminate medical debt.

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 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 Chapter 7 cases, a debtor (the person who files for bankruptcy relief) could lose property. The Chapter 7 trustee may sell the property and use the money to pay the debtor’s unsecured debts. Therefore, before filing for Chapter 7 bankruptcy, determine whether any of your property is at risk of being sold. 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. 

Filing Chapter 13 Bankruptcy to Get Rid 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 bankruptcy discharge. Therefore, if you owe medical bills, your creditors will receive a percentage of your medical debts. Once you complete your bankruptcy plan and receive your discharge, your legal liability to repay the remaining medical debt 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.

Compare your options

We built the Chapter 7 calculator to help you estimate Chapter 7 qualification and compare your different debt payoff options so that you can be the most informed about your debt payoff decision. The calculator does the following:

  1. Compares Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Debt Settlement, Debt Management, Debt Payoff Planning
  2. Often takes between 2-10 minutes, depending on the level of detail you want.
  3. Estimates costs, pros and cons, and options for each of the options
  4. Provides assumptions behind the estimates
  5. Provides an opportunity for us to do a complimentary review of your data.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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