Can I Eliminate Medical Bills in Bankruptcy?

Yes, you can wipe out (discharge) medical debt in bankruptcy. In fact, having unpaid medical bills is a common reason people seek bankruptcy relief. But you’ll want to consider several factors before deciding whether bankruptcy is right for you.

• Has your illness resolved, or could you face another financial crisis?
• Can the medical provider collect from you?
• Have you applied for payment assistance?
• Do you have other debt you can wipe out in bankruptcy?
• Is your income low enough to wipe out medical bills quickly in Chapter 7?
• Are you a higher income earner who would like to wipe out medical debt while catching up on mortgage, car, tax, or domestic support obligation arrearages in Chapter 13?

Keep reading to learn how the answers to these questions will help determine if filing for bankruptcy is the right choice for you.

Should You Use Bankruptcy to Eliminate Medical Bills?

Accumulating thousands of dollars in medical debt is overwhelming, and the idea of wiping it out in bankruptcy can be compelling. However, it might not be the right time, or another solution might exist. Here are a few things to consider:

• Will another financial crisis arise? Debtors are only entitled to receive so many discharges within a certain period. For instance, after receiving a Chapter 7 discharge, you must wait eight years before receiving another. If you incur more medical bills after your first bankruptcy, or if some other expensive calamity occurs, you’ll be at the mercy of debt collectors until you pay off the obligation or qualify for another discharge. Find out how often you can wipe out debt in bankruptcy.
• 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 (ensure all property can be protected from creditors using exemptions) are often permanently judgment proof. 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 expired, the creditor can’t force you to pay the bill. The debt will impact your credit report for a significantly longer time, however.
• 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 be able to have it waived entirely. If this solution works, you’ll be able to keep your bankruptcy discharge in your back pocket just in case you suffer 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.

Do You Have Debts Other Than Medical Bills to Eliminate in Bankruptcy?

If all you have to wipe out is medical debt, that’s perfectly fine. But knowing you can get rid of other bills could help tip the balance in favor of bankruptcy. Here are examples of dischargeable debts:

• credit card debt
• medical bills
• utility balances
• back rent or lease payments
• gym and other memberships
• personal and payday loans, and
• mortgages, auto loans, and other secured debt (but you’ll have to return the property securing the debt to the lender).

Not all obligations can be erased in bankruptcy, however. For instance, you’ll remain responsible for nondischargeable debt, 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 (keep reading to learn about the differences between Chapters 7 and 13).

Which Bankruptcy Chapter to Use When Eliminating Medical Bills

The type of bankruptcy you’ll file will depend on your situation and whether you meet qualification requirements.

How Medical Bills Are Treated Under Chapter 7 Bankruptcy

A Chapter 7 discharge will wipe out an unlimited amount of medical bills along with other dischargeable debt. However, to qualify for Chapter 7, your disposable income must be low enough to pass the Chapter 7 means test. Find out more about the steps you’ll take in Chapter 7 bankruptcy.

How Medical Bills Are Treated Under Chapter 13 Bankruptcy

You must qualify for Chapter 13 as well—and it can be expensive. You must make enough to pay the required amounts through your three- to five-year Chapter 13 repayment plan. Also, your medical bills and other debts can't exceed the allowed Chapter 13 debt limits.

You’ll start by separating your debts into different categories—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 amount remaining after higher priority debts get 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. Most debtors fall somewhere in 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 and how to calculate a Chapter 13 repayment plan.

More Information

You can learn more about your options by consulting with a bankruptcy attorney or checking out more about Chapter 7 and Chapter 13 Bankruptcy.