Medical Debt and Bankruptcy

confused frustrated young man looking at debts

According to a study published by The American Journal of Medicine, more than 62 percent of people who file bankruptcy do so because of medical debt. Of these individuals, 92 percent of them had medical debt of $5,000 or more.

it’s no wonder many people throughout the United States and in Florida struggle with medical debt. As medical bills pile up and take a more significant financial toll, many people wonder, “Can you file bankruptcy on medical bills?”

If you’re struggling with medical debt, the good news is there may be help available through the bankruptcy process. Getting the most from your bankruptcy filing can be challenging, however, unless you have an experienced lawyer on your side.

The bankruptcy attorneys at Loan Lawyers have more than 10 years of experience helping Florida residents with foreclosure defense, debt defense, and bankruptcy issues. We’ve helped thousands of people find the financial relief they’ve been looking for. You can read their success stories for yourself. Our Florida bankruptcy lawyers can explain the various bankruptcy options available to you, then work with you and your creditors to find a way forward that reduces or eliminates your outstanding medical debts.

Get a free initial consultation today by calling our office in Fort Lauderdale, or you can visit our contact page for more information.

Is Medical Debt Dischargeable in Bankruptcy?

When someone files for bankruptcy, their various debts are broken down into three broad categories, which determines whether those debts can be discharged at all (meaning the person filing for bankruptcy no longer needs to pay those debts) and how much of the debt can be wiped out. Those categories are:

  • Secured debts – Secured debt is any loan that requires the person borrowing the money to put up some kind of collateral. For example, car loans and mortgages are usually considered secured debts because if you don’t make your loan payments, the lender can seize your car or your home to recover the money the borrower failed to pay back. You may be able to reduce the amount you owe on these debts to the value of the underlying collateral in some situations or give up the asset to avoid the debt load entirely.
  • Unsecured debts – Unsecured debts are loans that do not require any form of collateral from the borrower. This includes credit card debt, personal loans, student loans, and most medical bills. Unsecured debts, including medical bills, can generally be discharged through bankruptcy. There are a few exceptions, however, such as student loans. When you file for bankruptcy, you can’t limit your case to just your medical bills.  There’s no such thing as filing medical bankruptcy. So, be sure to take your entire financial picture into account before deciding to file.
  • Priority debts – Priority debts are debts that cannot be discharged through bankruptcy. They can be secured or unsecured. Alimony, child support payments, unpaid taxes, and student loans are all examples of priority debts. However, medical debts are generally not considered priority debts under the federal Bankruptcy Code.

Since outstanding medical bills are usually not considered priority debts under the bankruptcy code, they can generally be discharged by filing for bankruptcy. If you have any questions about whether you should file for bankruptcy due to your outstanding medical bills, talk to a bankruptcy attorney as soon as possible.

Filing Chapter 7 Bankruptcy for Medical Debt

There are two primary ways that people file for bankruptcy under the federal Bankruptcy Code. There’s Chapter 7 bankruptcy and Chapter 13 bankruptcy. These chapters refer to the particular section of the Bankruptcy Code used when someone files for bankruptcy.

There are advantages and disadvantages to both Chapter 7 and Chapter 13 bankruptcy, and which financial tool to use will depend on your specific circumstances.

Filing for bankruptcy under Chapter 7 is sometimes known as a “liquidation bankruptcy.” When you file for bankruptcy under Chapter 7, the bankruptcy court will impose a court order known as an automatic stay, which bars your creditors from taking any further action to collect on your outstanding debts. This includes contacting you about your debts, garnishing your wages or bank accounts, repossessing your assets, or foreclosing your home.

Once the automatic stay is in place, you will have to sell any of your assets that do not qualify for an exemption. The money generated from selling these assets will go towards paying back your creditors to the best of your ability. After the bankruptcy trustee sells your assets, the court will wipe out whatever outstanding debts you have that are eligible to be discharged, including your medical debts.

The main disadvantage of filing for Chapter 7 bankruptcy is that it requires you to potentially give up more of your assets than if you filed for Chapter 13 bankruptcy. Furthermore, only people with certain income levels are eligible to file for Chapter 7 bankruptcy. You have to go through a means test to show that you qualify. A Chapter 7 bankruptcy filing will also linger on your credit report longer after your bankruptcy is complete, which can make it a challenge to obtain credit.

However, filing for Chapter 7 bankruptcy can be less expensive than a Chapter 13 bankruptcy case. More of your debts can also be discharged through Chapter 7 than through Chapter 13, making it a more appealing option for many people. A bankruptcy lawyer can tell you more about which bankruptcy route is best for your situation.

Filing Chapter 13 Bankruptcy for Medical Debt

A Chapter 13 bankruptcy filing is also known as a “reorganization bankruptcy.” This is because instead of liquidating your remaining assets to pay back your creditors, a Chapter 13 bankruptcy case involves restructuring your debt and making it more manageable for you.

In a Chapter 13 bankruptcy case, you’ll work with your creditors to develop a repayment plan that fits your financial resources and allows your creditors to be paid back over three to five years. This way, you get to keep more of your assets while giving yourself some breathing room and paying back your creditors. Once you’ve made all your required payments, the courts will discharge whatever remaining debts you have.

If you don’t want to sell your belongings or most of your debts are secured or priority debts that you can’t discharge, chapter 13 may be a better match for you. Likewise, if you do not pass Chapter 7’s means test, Chapter 13 may be your next best option.

To qualify for Chapter 13 bankruptcy, you must show that you have the means to repay your creditors. It’s essential that you keep to the terms of your repayment plan. Missing even just one payment can force you back to square one, and you may even have to pay additional penalties and interest. Therefore, you’ll want to be extremely careful until you’ve made all your payments.

When Should I File Bankruptcy for Medical Bills?

There’s no single “right time” to file for bankruptcy on medical bills. The right time to file will depend on your individual circumstances. That said, there are a few factors to keep in mind if you’re thinking about filing for bankruptcy for medical bills.

First, bear in mind that there’s no such thing as a “medical debt bankruptcy.” Medical debts can be discharged through bankruptcy, but the courts will look at the entire scope of your financial situation when determining how much of your debts will be wiped out. If you have other large debts in addition to your medical bills, those debts will be considered when you file, which could drastically impact how your case plays out.

Secondly, consider that you can’t immediately file for bankruptcy again once your current case is resolved. So, if you end up accumulating more medical bills or other debts within a short time of wrapping up a previous bankruptcy case, you will have to find another way to repay or discharge those debts. This may mean that it’s better to wait to file for bankruptcy until you’ve completed your treatment. That way, you don’t run the risk of getting into financial trouble without having bankruptcy as an option.

If you have outstanding medical debts and you’re not sure of when you should file for bankruptcy, talk to a bankruptcy attorney. They can advise you of your best path forward.

Contact Our Medical Debt Bankruptcy Lawyers Today

Outstanding medical debt can quickly become a massive financial and psychological burden. Give yourself peace of mind and a cleaner bill of financial health by talking to a bankruptcy lawyer about your options. Get a free case review from one of the attorneys at Loan Lawyers by calling our office, filling out a contact form, or chatting with us live today. We can discuss your options, bankruptcy, and medical bills during your consultation case review.