Do Medical Bills Go Away With Bankruptcies?

Medical bills represent a significant financial challenge for many individuals and families. Unexpected illnesses, accidents, or chronic conditions can lead to substantial debt, even for those with health insurance coverage. When facing overwhelming medical obligations, many people wonder if bankruptcy offers a viable solution. This article explains how medical bills are typically addressed in bankruptcy proceedings.

Understanding Bankruptcy Chapters

Consumer bankruptcy primarily involves two common types: Chapter 7 and Chapter 13. Understanding these chapters is foundational to comprehending how debts, including medical bills, are managed. The choice between them often depends on an individual’s income, assets, and overall financial situation.

Chapter 7, often called liquidation bankruptcy, aims to provide a quick fresh start by discharging most unsecured debts. To qualify, individuals generally must pass a “means test,” which compares their income to the median income in their state. In Chapter 7, a court-appointed trustee may sell non-exempt assets to repay creditors, though many individual cases are “no-asset” cases where no property is sold.

Chapter 13, known as reorganization bankruptcy, allows individuals with a regular income to repay their debts over a period, typically three to five years. Debtors propose a repayment plan to the court, making regular payments to a trustee. At the successful conclusion of the plan, any remaining unsecured debts are discharged. This chapter features debt limits for both unsecured and secured debts, which are subject to periodic adjustments.

Discharging Medical Bills

Medical bills are generally classified as unsecured, non-priority debt. This classification means they are not backed by collateral, unlike a mortgage or car loan, and do not receive special treatment over other unsecured debts like credit card balances. Medical debt is typically eligible for discharge.

In a Chapter 7 bankruptcy, medical bills are usually eliminated. Once the bankruptcy process is completed, the court issues a discharge order that releases the debtor from the obligation to repay these debts. There is generally no limit to the amount of medical debt that can be discharged in Chapter 7.

For individuals filing Chapter 13 bankruptcy, medical bills are included in the repayment plan. Debtors pay a portion of their unsecured debts through this plan, based on their disposable income and what creditors would have received in a Chapter 7 case. After completing all payments under the plan, any remaining balance of the medical debt is discharged. Many filers end up paying only a fraction of their original medical debt in Chapter 13.

Most types of medical debt, ranging from hospital stays and doctor’s visits to ambulance services and laboratory fees, are eligible for this discharge. The bankruptcy process offers a pathway to relief from significant financial burdens caused by healthcare expenses.

Non-Dischargeable Medical Debts

While most medical debts can be discharged in bankruptcy, certain situations may prevent their elimination. Debts incurred through fraudulent actions or misrepresentation are generally not dischargeable. For example, if a debtor obtained medical services by providing false information with the intent to deceive, that specific debt might be excluded from discharge.

Certain medical liens can complicate the discharge process. If a medical provider, such as a hospital, has placed a lien on a personal injury settlement or specific property, that lien may not be eliminated through bankruptcy without additional legal action. This means the medical provider could still have a claim against the settlement proceeds or the asset itself, even if the underlying debt is discharged.

Medical debts incurred after the bankruptcy filing date are generally not included in the current bankruptcy discharge. These post-petition debts remain the debtor’s responsibility. If an individual continues to accrue significant medical expenses after filing, those new bills will not be covered by the existing bankruptcy case.

Though rare for medical debt, a debtor could voluntarily enter into a “reaffirmation agreement” for a specific debt. This agreement, which must be approved by the court, binds the debtor to repay a debt that would otherwise be discharged. Entering such an agreement for medical debt would make it non-dischargeable, though it is more commonly seen with secured debts like car loans.

Preparing to Address Medical Bills in Bankruptcy

Individuals considering bankruptcy to address medical bills must undertake preparatory steps to ensure all debts are handled. A primary action involves gathering all relevant documentation related to medical expenses. This includes statements from hospitals, doctors’ offices, laboratories, and ambulance services, alongside any collection notices received from third-party agencies.

Identifying all medical creditors is another step. This means compiling a comprehensive list that includes not only the original healthcare providers but also any collection agencies or debt buyers who have acquired the debt. It is important to ascertain the accurate total amount owed to each entity, as this information will be necessary for the bankruptcy petition.

Accurately determining the total amount of medical debt across all creditors is essential for completing the required bankruptcy forms and schedules. The bankruptcy petition demands a complete and accurate disclosure of all liabilities.

Listing every medical debt, regardless of its amount or perceived dischargeability, in the bankruptcy petition and schedules is important. Failing to list a debt could result in it not being discharged, meaning the debtor would still be responsible for it after the bankruptcy case concludes. Honesty and transparency in disclosing all financial obligations are important in the bankruptcy process.