Can You File Bankruptcy on Medical Bills?

It is a sad fact that medical issues often lead to large medical bills. These bills can be astronomical in size and impossible to pay in a timely manner. They often leave people feeling like they have no options and will always have this large debt hanging over their head. Fortunately, it is possible to file bankruptcy on medical bills.

Bankruptcy and Medical Debt

There is no type of bankruptcy specifically designed to address medical debt. You will have to use one of the two traditional bankruptcy options. These are chapter 7 bankruptcy and chapter 13 bankruptcy. 

Chapter 7

Chapter 7 bankruptcy is also known as liquidation bankruptcy. This type of bankruptcy involves the appointment of a bankruptcy trustee. The trustee will oversee the selling of all non-exempt assets and using the proceeds to pay off your debt. After this process is complete, all remaining debt is discharged, meaning that you no longer have any obligation to pay it. Eligible medical debt can be included in this process.  

Chapter 13

Chapter 13 bankruptcy is designed for individuals with income and involves reorganizing your debts and proposing a repayment plan, usually lasting 3-5 years. The repayment plan must be proposed to the court.   The plan length and the level of repayment depends on a variety of factors under federal bankruptcy law.  Chapter 13 bankruptcy allows you to keep your assets, such as your home, while still offering relief from large amounts of debt. Eligible medical debt can be included in this process. 

Eligibility for Bankruptcy on Medical Debt

There are no special eligibility considerations for medical bills under bankruptcy. Medical debt is treated the same as any other debt, such as a credit card or a personal loan.  Medical debt is considered unsecured. This means that it is eligible to be discharged under either chapter 7 or chapter 13 bankruptcy. 

Is There Debt Forgiveness for Medical Bills?

There are other options for having your medical debt forgiven. For example, there are charity care programs. These programs are present in over half of U.S. hospitals and provide debt forgiveness for medical bills. Eligibility requirements vary between hospitals, but they typically consider income, household size, and bill age when determining how much debt to forgive. You can also attempt to lower your debt by negotiating with your medical provider directly. While providers are often willing to lower your debt, it is rare that they will completely forgive it.

Can You Go to Jail for Not Paying Medical Bills?

You will not go to jail for failing to pay your medical bills. However, there are other consequences you may face. Such consequences include:

• Lawsuits
• Wage garnishment
• Asset seizure
• Impact on your credit score if sent to collections

If you are sued due to an unpaid debt, it is important to comply with any court orders. Failure to do so could lead to jail time.

What Bills Cannot Be Included in Medical Bankruptcy?

There are medical bills that cannot be discharged through bankruptcy. These include:

• Some medical debt is considered secure debt. For example, if the debt is due to a piece of expensive medical equipment you need in your home. Defaulting on this debt will usually result in having to return the equipment before any debt related to it can be discharged in bankruptcy.  While rare, this does happen occasionally.  
• Any medical debt owed to government entities, such as Medicare, are considered priority debts. This means that they will remain payable after bankruptcy.

Other than these two exceptions, almost all medical debt is eligible to be discharged through bankruptcy, making it a great option if you are struggling with medical debt.  

Alternatives to Medical Debt Bankruptcy

If medical debt is your only outstanding debt, you may be hesitant to file for bankruptcy. Fortunately, there are other options. These include:

• Debt Consolidation: This is when all of your medical debt is combined into one new loan. You will only make a monthly payment on this loan. This option can make it much easier and simpler to pay off your medical debt.

• Credit Counseling: A credit counselor can help you create a budget and reorganize your medical debt. This can help you create a plan for paying off your medical debt without resorting to bankruptcy.
• Negotiating with Medical Providers: A majority of medical providers would rather work with patients than take them to court. If you explain your financial situation, you can often have your medical bills lowered or have a reasonable payment plan created

These alternatives can provide relief outside of bankruptcy. However, it is always wise to consult with a bankruptcy attorney regarding your options.  Many times, these debts can be eliminated without any repayment.