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.
Keep reading to learn how the answers to these questions will help determine if filing for bankruptcy is the right choice for you.
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:
If your medical condition has resolved and one of the two alternate solutions won't work, it's time to consider filing for 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:
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).
The type of bankruptcy you'll file will depend on your situation and whether you meet qualification requirements.
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.
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.