What Is Medical Bankruptcy?

Falling into debt due to medical costs is a reality in the United States. Many Americans struggle with the high costs of health care and are saddled with high medical bills after a medical emergency. Unfortunately, no chapter in the bankruptcy code is explicitly dedicated to medical bankruptcy.

When medical bills and debt become overwhelming, some turn to bankruptcy to relieve their debt burden. “Medical bankruptcy” refers to bankruptcy filings caused by medical debt. One of the more common ways to obtain debt relief from medical expenses is through Chapter 7 bankruptcy.

If you have questions about how to benefit from clearing medical care costs in bankruptcy, talk to an experienced local bankruptcy attorney for legal advice.

What Does Medical Bankruptcy Mean?

Medical bankruptcy is a term for describing bankruptcy resulting from medical debt. Health care costs are higher in the United States than in other developed countries. Even with insurance coverage, medical costs may be so high that the only option is filing personal bankruptcy.

In recent years, there have been higher rates of people filing for bankruptcy due to medical treatment. Despite having health insurance, many have found themselves burdened by medical debt resulting from charges not covered by the fine print of their insurance policy.

Can Medical Debt Be Discharged Through Bankruptcy?

Yes, medical debt is a form of debt dischargeable through filing bankruptcy.

Bankruptcy law classifies medical debt as unsecured debt. Unsecured debt means it is debt not tied or attached to any property or assets that you own. Bankruptcy is frequently used to discharge unsecured debts like credit card debt, medical debt, and personal loans.

Secure debts are debts tied to assets that the creditor can repossess if the debt is not paid. A home mortgage or car loan are examples of secure debts. The bank may foreclose on your home if you do not pay your mortgage.

How Do I File for Medical Bankruptcy?

You can discharge your medical debt through either Chapter 7 or Chapter 13 bankruptcy relief. Before filing the bankruptcy petition, you must take a credit counseling class. Then, you have to decide which type of bankruptcy to file. Chapter 7 and Chapter 13 bankruptcy are the two most common forms.

With Chapter 7, you can discharge your medical debt after the court has liquidated your non-exempt assets. You can keep certain exempt property, like personal property, clothing, and necessities. Depending on your state, you may also be able to keep equity in your home, vehicle, retirement accounts, and other property. After four to six months, the debtor’s remaining unsecured debt is discharged.

In Chapter 13, you will make a repayment plan to pay off most of your debt over three to five years. After the repayment plan period ends, you are discharged from all remaining debt.

Can Medical Providers Collect on Debts After Bankruptcy?

When you file for bankruptcy, there is an automatic stay on collection activities. This means a stop to foreclosure, wage garnishment, and health care providers sending out debt collectors.

What Percentage of Bankruptcies Are Medical?

This is difficult to determine because several factors often lead to bankruptcy. Medical debt is both a direct and indirect cause of bankruptcy. However, hundreds of thousands of Americans cite unpaid medical bills as a factor in filing for consumer bankruptcy every year.

What Alternatives to Bankruptcy Exist To Eliminate Medical Debt?

You can often negotiate with medical creditors for a repayment plan, lowered interest rates, or debt settlement to eliminate medical debt. Most creditors would prefer working with you instead of going through bankruptcy court. They may also offer financial assistance to help reduce your out-of-pocket costs.

If medical debt is the primary reason you are thinking about a bankruptcy filing, there are alternatives you may want to explore. Medical creditors are usually more willing than other types of debt to work with you on repayment, possibly even accepting a lower amount.

How Can a Bankruptcy Attorney Help With Medical Debt?

A bankruptcy case is a way for you to erase medical debt. Filing Chapter 7 bankruptcy could be your best option if you do not think you can pay off your medical debt based on income.

Experienced bankruptcy attorneys explain your legal options. This comprises everything from debt relief for medical expenses, including debt consolidation, to settlement negotiations or filing for bankruptcy. Your attorney can also explain the bankruptcy process so you can move on with your life as soon as possible.