Yes, you can wipe out or "discharge" medical debt in bankruptcy. In fact, many people who can't pay medical bills on their own get rid of them by filing for bankruptcy. But both Chapters 7 and 13 have qualification requirements. Here are a few things you'll want to consider:
You're probably getting the idea that while you can discharge medical debts, you'll need to know how Chapters 7 and 13 work before you'll be able to decide whether filing for bankruptcy will be a good idea. Answering the questions in the "Medical Debt Bankruptcy Shortcut" at the end of the article will help.
It's indisputable that bankruptcy solves medical debt problems. But you can't file exclusively on medical debt and leave other bills out of the case. You must report everything you owe when filing for bankruptcy.
However, this shouldn't pose a problem. If you're like most, you'll want to erase other debt and come as close to getting a clean financial slate as possible.
It's perfectly fine to file for bankruptcy when all you have is medical debt. But knowing that you'll include everything you owe, and it's possible that you'll get rid of other bills could help tip the balance in favor of bankruptcy.
Here are examples of "dischargeable debts," or debts that will qualify for a discharge:
However, you can't erase every bill and obligation in bankruptcy. For instance, you'll remain responsible for nondischargeable debts, like domestic support obligations, recent income tax debt, and student loans (unless you qualify for an exception).
You can eliminate all of the same debts in Chapter 13 as in Chapter 7, but Chapter 13 lets you discharge a few more obligations. And it offers benefits not available in Chapter 7. We explain the differences between Chapters 7 and 13 further below.
The idea of wiping out thousands of dollars in bankruptcy can be compelling. However, it might not be the right time.
The timing matters because you can only receive so many discharges within a certain period. For instance, after receiving a Chapter 7 discharge, you must wait eight years before receiving another.
Here's the potential problem.
Suppose you incur more medical bills after your first bankruptcy or some other expensive calamity occurs. You'd be at the mercy of debt collectors until you paid off the obligation or qualified for another discharge.
So before deciding to file, consider asking yourself two questions: "Has my medical condition stabilized? What's the likelihood that another financial crisis will arise?"
Find out how often you can wipe out debt in bankruptcy.
Not everyone needs to file for bankruptcy, and you might be one of those people.
Are you judgment proof? Some people don't have income or property that a collector could reach, and there's no need to file for bankruptcy—they're "judgment proof." Seniors with protected income, such as Social Security benefits and minimal assets, are often permanently judgment proof. But be sure to ensure you can protect all of your property from creditors using exemptions.
If your financial situation is temporary, calculate whether you can wait out the statute of limitations—the amount of time a creditor has to go to court and get a money judgment against you. Once it expires, the creditor can't force you to pay the bill. However, the debt will impact your credit report for a significantly longer time.
Can you apply for medical payment assistance? Many hospitals understand that it can be hard to pay outstanding balances and offer assistance programs for low-income people. You might even get the debt waived entirely. If this solution works, you'll be able to keep your bankruptcy discharge in your back pocket just in case you suffered another financial downturn.
If your medical condition has resolved and one of the two alternate solutions won't work, it's time to consider filing for bankruptcy.
In many instances, bankruptcy is the best option. You can eliminate medical debt in Chapters 7 and 13, but the two chapters work very differently. The type of bankruptcy you'll choose will depend on three things:
Below you'll learn more about what you'll want to consider when facing a Chapter 7 vs. Chapter 13 bankruptcy dilema.
Most people prefer to file for Chapter 7, but it doesn't solve every problem. Here are some of the pros and cons of a Chapter 7 filing.
Find out about the steps you'll take in Chapter 7 bankruptcy.
You can wipe out medical debt in Chapter 13, but you'll probably pay back some portion through a three- to five-year Chapter 13 repayment plan. Here are the basics.
You'll start by separating your debts into priority and nonpriority unsecured debt. Debts such as domestic support obligations and recent overdue taxes receive special priority treatment and must be repaid in full. You'll also need to pay any mortgage, auto loan, or other secured debt arrearages if you want to keep the property.
Most other debts, including medical bills and credit card balances, don't receive priority treatment. They're all lumped into one "general unsecured" debt category. Each creditor gets a pro-rata portion of the remaining amount after higher priority debts are paid.
Some people won't have any money remaining and will have what's known as a "zero percent" plan, which is fine in many courts. Others will have enough to pay creditors in full, and most debtors fall somewhere between. The amount you'll have available to pay will depend on your income, expenses, and nonexempt assets. The court will discharge the balance of qualifying debts when you complete the plan.
Learn about the benefits available only in Chapter 13.
We've given you quite a bit to consider. Here are the questions you'll want to answer before filing a medical bankruptcy.
You can learn more about your options by reading about Chapter 7 and Chapter 13 Bankruptcy or consulting with a bankruptcy attorney.
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