Can You File Bankruptcy on Hospital Bills?

Medical debt presents a significant financial challenge for many in the United States. Unexpected illnesses or injuries, coupled with high deductibles, copayments, and out-of-network charges, can lead to substantial medical bills, even for those with health insurance. Millions of Americans carry medical debt, with estimates suggesting at least $220 billion is owed nationally. When these expenses become overwhelming, bankruptcy offers a potential path forward.

Understanding Medical Debt in Bankruptcy

Medical debt is generally classified as unsecured debt, meaning it is not tied to any specific asset like a house or car. Unlike secured debts where a creditor can repossess collateral, unsecured debts lack such backing. Medical bills, similar to credit card debt and personal loans, are typically dischargeable through bankruptcy. Once a bankruptcy case is successfully completed, the debtor is released from the obligation to pay these debts.

Certain types of debt generally cannot be eliminated in bankruptcy. These include most student loans, recent tax obligations, child support, alimony, and fines or restitution for criminal offenses. Debts incurred through fraudulent activity also usually fall into the non-dischargeable category. Medical debt is routinely discharged in consumer bankruptcy cases.

Available Bankruptcy Chapters

Individuals seeking to discharge medical debt primarily utilize two chapters of the U.S. Bankruptcy Code: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy, often called liquidation, allows for the discharge of most unsecured debts, including medical bills, typically within a few months. To qualify, an individual must pass a “means test,” assessing their income against the median for their household size in their state. If their income is below the median, or if disposable income after allowable expenses is limited, they may be eligible for Chapter 7.

Chapter 13 bankruptcy, known as reorganization, involves a court-approved repayment plan typically spanning three to five years. This chapter is suitable for individuals with a regular income who do not qualify for Chapter 7 or who wish to protect assets, such as a home, at risk in a Chapter 7 filing. Under a Chapter 13 plan, medical debt is included as unsecured debt, and a portion may be repaid over the plan’s duration. Any remaining balance is discharged upon successful completion of the repayment plan.

Gathering Information for Bankruptcy

Before filing, a debtor must gather financial and personal information. This involves collecting income statements, such as recent pay stubs and tax returns for the past two years, along with bank statements and investment account summaries. An accounting of monthly living expenses, including housing, utilities, food, and transportation costs, is necessary. This financial snapshot helps determine eligibility and forms the basis of the petition.

A complete listing of all assets is required. This includes real estate, vehicles, personal property like furniture and electronics, and valuables such as jewelry. For each asset, an estimated current market value should be determined. A list of all creditors is equally important, detailing each creditor’s name, address, account number, and the exact amount and type of debt owed. This must include all medical bills, specifying the provider.

Federal bankruptcy law mandates a pre-bankruptcy credit counseling course from an approved agency. This course must be taken within 180 days before filing. Obtaining the certificate of completion is required, as the court will need proof before the case can proceed.

The Bankruptcy Petition Process

Once all necessary information is gathered and the pre-filing credit counseling course completed, the formal bankruptcy petition can be filed. This involves submitting the petition and various schedules—forms outlining assets, liabilities, income, and expenses—with the bankruptcy court, electronically or via paper. Filing immediately triggers an “automatic stay,” a legal injunction that temporarily halts most collection activities against the debtor, including collection calls, lawsuits, repossessions, and foreclosures.

Following the filing, a bankruptcy trustee is appointed to oversee the case, reviewing submitted documents and administering non-exempt assets in Chapter 7 cases. Approximately 20 to 40 days after filing, the debtor must attend a “341 Meeting of Creditors.” During this meeting, the trustee verifies the debtor’s identity, asks questions under oath about the petition and schedules, and creditors can inquire about the debts.

After the 341 meeting, debtors are required to complete a post-filing debtor education course from an approved provider. This course focuses on personal financial management. Upon successful completion of all requirements, the bankruptcy court will issue a discharge order. This order releases the debtor from personal liability for most dischargeable debts, including medical bills, marking the end of the bankruptcy process.