Can Medical Debt Be Discharged in Bankruptcy?

Bankruptcy offers a legal pathway for individuals facing overwhelming debt, providing an opportunity for a financial fresh start. Medical debt is often a significant reason for considering this process. Unexpected illnesses, accidents, or chronic conditions can lead to substantial medical bills, even with health insurance, making household finances difficult to manage. When these debts become unmanageable, understanding how bankruptcy can provide relief is important.

Types of Bankruptcy Relevant to Medical Debt

Individuals primarily consider two types of consumer bankruptcy: Chapter 7 and Chapter 13. Chapter 7, often termed liquidation, is for those with limited income who cannot repay their debts. It involves selling non-exempt assets to pay creditors, though many debtors can protect essential property through exemptions. This process typically concludes within a few months, offering a quick discharge of eligible debts.

Chapter 13, known as reorganization, is for individuals with a regular income who can repay a portion of their debts over time. This chapter allows debtors to create a repayment plan, typically lasting three to five years, with regular payments to creditors. Unlike Chapter 7, it usually does not involve asset liquidation, enabling debtors to retain property. Eligibility for Chapter 13 depends on the amount of secured and unsecured debt, with specific limits that change periodically.

How Medical Debt is Discharged in Bankruptcy

Medical debt is typically classified as unsecured, non-priority debt in bankruptcy proceedings, similar to credit card debt or personal loans. It is generally dischargeable in both Chapter 7 and Chapter 13 bankruptcy. In a Chapter 7 case, qualifying medical debt is usually eliminated completely within a few months. There is no specific cap on the amount of medical debt that can be discharged.

For Chapter 13 filers, medical debt is included in the court-approved repayment plan. Debtors may repay only a portion, with any remaining balance discharged upon successful completion of the three- to five-year payment period. While medical debt is broadly dischargeable, rare scenarios could complicate its treatment. For instance, medical debt from fraud or debt secured by specific property, though uncommon, might not be fully discharged. If medical bills were co-signed, the co-signer generally remains responsible for the debt in a Chapter 7 case, even if the primary borrower is discharged. New medical debt incurred after the filing date will not be covered by the existing case.

Preparing for Bankruptcy Filing

Before filing bankruptcy, gathering comprehensive financial documentation is essential. This includes tax returns from the previous two years, recent pay stubs or other proof of income for the last six months, and bank statements. A complete list of all creditors, including medical providers, along with amounts owed, is also essential. Debtors should also compile information regarding assets, such as real estate valuations, vehicle registrations, and statements for retirement or brokerage accounts.

Individuals must complete a pre-bankruptcy credit counseling course from an approved provider within 180 days before filing. This mandatory session, typically 60 to 90 minutes, evaluates the debtor’s financial situation, discusses alternatives to bankruptcy, and helps create a personal budget. The counseling agency provides a certificate of completion, which must be submitted with the petition.

The Bankruptcy Filing and Discharge Process

After preparing all documentation, the formal bankruptcy process begins with submitting the petition and schedules to the court. Once filed, an automatic stay immediately goes into effect, temporarily preventing most creditors from continuing collection actions, including phone calls, lawsuits, and wage garnishments. This stay offers immediate relief from creditor pressure while the case proceeds. The automatic stay generally remains in effect until the case is closed, though its duration can vary based on the type of bankruptcy and prior filings.

A mandatory meeting, known as the 341 Meeting of Creditors, is scheduled approximately 21 to 50 days after the petition is filed. During this meeting, conducted by a bankruptcy trustee, the debtor answers questions under oath about their financial situation, assets, and debts. Creditors may attend and ask questions, though this is not common. Following this meeting, debtors must complete a post-filing debtor education course focusing on personal financial management. Upon successful completion of all requirements, the court issues a discharge order, permanently releasing the debtor from personal liability for eligible debts, including medical debt. This order prohibits creditors from any further collection efforts on discharged debts.