Filing Bankruptcy for Medical Debt

Unfortunately, after a health scare, the cost of care can leave you on the hook for astronomical medical bills. This medical debt has the potential to destroy your financial health. For many, the only way to free themselves of medical debt is to declare bankruptcy. In fact, according to the National Library of Medicine, medical bills account for 40% of bankruptcies. Let’s take a look at your options when it comes to filing bankruptcy for medical debt. 

Can You File for Bankruptcy Due to Medical Debt?

Fortunately, yes, you can file for bankruptcy due to medical debt. This is a great option for anyone who feels that they will never be able to pay off their medical debt. Like with other debts, medical debt can be discharged through bankruptcy, allowing you to move on with your life. However, there are two options you will need to choose between, which are Chapter 7 or Chapter 13 bankruptcy. 

Chapter 7

Chapter 7 bankruptcy is also called liquidation bankruptcy. A court-appointed trustee takes control of your non-exempt assets, sells them, and uses the proceeds to pay creditors. After this process is completed, any remaining unsecured debt, including medical debt, is discharged. Chapter 7 is usually the quickest way to rid yourself of debt and provides you with a completely fresh start free from any debt. However, it should be noted that Chapter 7 bankruptcy can be extremely disruptive to your life. Having your assets sold can completely change what your life looks like and could leave you with not much to start your new debt-free life with. 

Chapter 13

Chapter 13 bankruptcy is also called a reorganization bankruptcy. It is intended to provide a pathway for individuals with regular income to manage and repay their debts under court supervision. It involves proposing a plan for repaying your creditors over a period of 3-5 years. The court will appoint a trustee who you will make these payments to. The trustee will then disperse the payments to your creditors. Chapter 13 bankruptcy allows you to turn all of your debts into one monthly, manageable payment. It also has the added benefit of allowing you to keep your property, unlike Chapter 7 bankruptcy. 

Statute of Limitations for Medical Debt

The statute of limitations on a debt is the period of time the creditor has after a missed payment to begin legal proceedings. After the statute of limitations passes, a creditor can no longer sue you to recover the money you owe. The exact length of the statute of limitations on medical debt varies in each state. In Pennsylvania, it is four years. This clock begins whenever the last payment was made. It should be noted that certain actions, such as making a payment, or even acknowledging the debt to the creditor, can restart the clock on the statute of limitations. You should also be aware that the statute of limitations expiring only means that legal action cannot be taken against you to collect the debt. The debt still exists and the creditor can still make efforts to collect it. It will also continue to negatively impact your credit score. 

What Bankruptcy Is Best for Medical Bills?

For many people, Chapter 7 bankruptcy is the preferred option when it comes to medical bills. This is due to how fast the process is and the fact that your debt is completely discharged. However, you will likely lose assets. If you have a high income, you may want to consider Chapter 13 instead, which will allow you to keep your assets while making payments on the medical debt for a period of 3-5 years. If you go the Chapter 13 route, it is important that you are confident in your ability to make the payments. Missing Chapter 13 payments could leave you in a worse place than you were before the bankruptcy.

Every situation is unique. It is important that you choose the type of bankruptcy that is right for you. It is best to consult with a bankruptcy attorney. We will be able to look at the details of your medical debt and determine which bankruptcy will be best for you. 

Is There Debt Forgiveness for Medical Bills

There is debt forgiveness for medical bills. The first option is through the hospital where you received your medical care. Many hospitals have programs to reduce, or even completely forgive, medical bills. There will often be eligibility requirements, such as income or family size, to qualify for these forgiveness programs. Every hospital’s program is different, so you will have to reach out to yours to find out if this is an option for you. 

Debt settlement is also an option. This is where you, or a debt relief company acting on your behalf, negotiate with the hospital to lower your medical bills. If you explain that there is no way you can pay the full amount, many hospitals will be willing to work with you to make it affordable. 

Neither of these options are guaranteed. In many cases, the only way to rid yourself of medical debt is to either pay it or declare bankruptcy.