Can You Go Bankrupt on Medical Bills?

Medical debt can be an overwhelming financial burden. Bankruptcy offers a path to relief. It is a legal process designed to help individuals manage or eliminate debt when their financial situation becomes unmanageable. Medical debt is a common factor in personal bankruptcy filings. This mechanism provides a structured approach to address financial hardship, offering a fresh start.

Understanding Medical Debt and Bankruptcy Eligibility

Medical debt is unsecured debt, not tied to a specific asset like a house or car. This is important in bankruptcy, as unsecured debts are treated differently than secured debts. Unlike a mortgage or car loan where the lender can repossess property, medical providers cannot seize assets directly for unpaid bills. This makes medical debt a common candidate for discharge.

Individuals seeking bankruptcy relief must meet eligibility requirements. A condition is residency, requiring the debtor to have lived in the state for at least 91 days of the 180 days preceding the filing.

Chapter 7 and Chapter 13 Bankruptcy Explained

Two types of personal bankruptcy are available: Chapter 7 and Chapter 13. Chapter 7, or “liquidation bankruptcy,” provides a quick financial fresh start by discharging most unsecured debts. A court-appointed trustee sells non-exempt assets, distributing proceeds to creditors. Debtors keep exempt property, which varies by state law, including essential items or home equity.

Eligibility for Chapter 7 is determined by a “means test,” assessing if a debtor’s income is low enough to qualify. This test compares the debtor’s average monthly income to the median income for a similar household in their state. If income falls below the median, the debtor qualifies; if above, further calculations determine eligibility. Chapter 7 is completed within four to six months from filing to debt discharge.

Chapter 13, known as “reorganization bankruptcy” or a “wage earner’s plan,” allows individuals with regular income to repay all or a portion of their debts over an extended period. Debtors propose a repayment plan, typically three to five years, making regular payments to a court-appointed trustee. This plan is manageable, allowing debtors to keep assets, unlike Chapter 7, which may require asset liquidation.

To qualify for Chapter 13, individuals must have secured and unsecured debts below specific limits, which are periodically adjusted. For cases filed between April 1, 2025, and March 31, 2028, the unsecured debt limit is $526,700, and the secured debt limit is $1,580,125. If debts exceed these thresholds, Chapter 13 is not an option. Chapter 13 provides a structured pathway to financial stability while protecting assets.

How Medical Debt is Handled in Bankruptcy Filings

Medical debt is unsecured debt in both Chapter 7 and Chapter 13 bankruptcy. This makes it dischargeable, meaning the debtor is no longer legally obligated to repay it once the bankruptcy process is complete. Discharge signifies a permanent court order releasing the debtor from personal liability for certain debts, prohibiting creditors from further collection actions.

In Chapter 7, most medical debt can be fully discharged, providing immediate relief. There is no cap on the amount of medical debt eliminated through Chapter 7. Only medical expenses incurred before the bankruptcy petition is filed are dischargeable; new debts arising after filing are not covered.

For Chapter 13, medical debt is incorporated into the debtor’s repayment plan as non-priority unsecured debt. Debtors make scheduled payments to a trustee over three to five years. The amount paid towards medical bills depends on disposable income and how much unsecured creditors would have received in a Chapter 7 case. Upon successful completion of the repayment plan, any remaining medical debt is discharged. This allows individuals to manage medical bills as part of a consolidated payment plan, often paying only a portion of the total owed.

Steps to Filing Bankruptcy for Medical Debt

Filing for personal bankruptcy, including for medical debt, involves several steps. First, complete a mandatory credit counseling course from a U.S. Trustee-approved agency within 180 days before filing. This course helps individuals understand their financial situation and explore alternatives to bankruptcy. A certificate of completion is required.

Next, gather financial documentation, including income statements, tax returns, bank statements, and a list of assets and liabilities. This information completes the bankruptcy petition and other required forms, filed with the bankruptcy court. Filing the petition triggers an “automatic stay,” temporarily halting most collection actions by creditors, including lawsuits, wage garnishments, and collection calls.

Following the petition filing, debtors attend a “Meeting of Creditors,” also known as a 341 meeting, typically held 21 to 50 days after filing. This meeting is not a court hearing; a bankruptcy trustee conducts it. The debtor answers questions under oath about their financial affairs, and creditors may attend and ask questions.

Before debt discharge, debtors complete a second course, a debtor education course on personal financial management. This course, separate from pre-filing credit counseling, must be completed after the bankruptcy petition is filed. Upon successful completion of all requirements, the court issues a discharge order, typically within 60 to 90 days after the 341 meeting in Chapter 7 cases.