How to File for Medical Bankruptcies

Medical debt can become an overwhelming financial burden, even for individuals with health insurance. When healthcare costs accumulate beyond a manageable point, bankruptcy may offer a pathway to financial relief. While there isn’t a specific legal category called “medical bankruptcy,” existing bankruptcy laws, particularly Chapter 7 and Chapter 13, provide mechanisms to address and discharge medical debts. These processes help individuals facing severe financial distress regain stability.

Determining Eligibility and Bankruptcy Type

Considering bankruptcy for medical debt requires assessing your financial situation to determine the most suitable type. The two primary forms of personal bankruptcy are Chapter 7 and Chapter 13. Medical bills are generally unsecured debt, similar to credit card debt, and are eligible for discharge under both chapters.

Chapter 7 bankruptcy, or liquidation bankruptcy, suits individuals with lower incomes and limited assets. To qualify, you must pass a “means test,” which evaluates if your income is below your state’s median for your household size. If your income exceeds this median, the test analyzes your disposable income after deducting allowed expenses to determine if you can repay a portion of your debts. Failing the means test suggests sufficient income to repay some debt, making Chapter 13 a more appropriate option.

Chapter 13 bankruptcy, or reorganization bankruptcy, is for individuals with regular income who can make debt payments over time. Unlike Chapter 7, there is no strict income cap for Chapter 13, but limits exist on secured and unsecured debt. Individual debtors typically cannot have more than approximately $465,275 in unsecured debts and $1,395,875 in secured debts. If your income is above your state’s median, you will likely enter a five-year repayment plan; those below the median may qualify for a three-year plan.

Gathering Required Information and Documents

Filing for bankruptcy requires collecting personal financial data and supporting documents. This ensures you have necessary information to complete official bankruptcy forms accurately and avoid delays.

Detailed income records are needed, including pay stubs for the six months before filing and your last two W-2 forms. If self-employed, year-to-date profit and loss statements and business bank statements are necessary. Documentation of other income sources, such as Social Security benefits, disability payments, or rental income, is also required.

Comprehensive asset information is essential. This includes bank statements for all checking, savings, and money market accounts for a recent period, often several months. You will also need property deeds for any real estate, vehicle titles, and statements for investment accounts, such as brokerage accounts or retirement funds. Proof of significant asset value, like a home appraisal or online estimate, may also be necessary.

Detailed information about all debts is crucial. Compile a list of all creditors, including names, addresses, account numbers, and outstanding balances. Distinguish between secured debts, tied to specific property like a mortgage, and unsecured debts, such as credit card balances and medical bills. For medical debt, collect itemized bills, collection notices, and details regarding any insurance coverage or denials.

Documentation of monthly living expenses is also required. This includes a detailed budget outlining household costs, utility bills, and rent or mortgage statements.

Completing and Submitting Your Petition

After gathering all financial information, accurately transfer this data onto official bankruptcy forms and submit your petition to the court. Forms are standardized and available from the U.S. Courts website or a bankruptcy court clerk. Use the correct forms for individual filers, such as Official Form 101 Voluntary Petition, and various schedules like A/B (Property), C (Exempt Property), D (Secured Claims), E/F (Unsecured Claims), G (Executory Contracts), H (Codebtors), I (Income), and J (Expenses). The Statement of Financial Affairs and the appropriate Means Test forms (e.g., Form 122A-1 for Chapter 7) are also required.

Carefully inputting data into these forms ensures accuracy and avoids issues. Each section requires specific details about your income, assets, debts, and expenses. For instance, your average monthly income for the means test is calculated using documentation from the six calendar months prior to filing. Forms also require disclosure of any property transfers made before filing.

Before submitting your petition, federal law mandates all individual bankruptcy filers complete a pre-bankruptcy credit counseling course from a U.S. Trustee Program-approved agency. This course, typically lasting 40-60 minutes, must be completed within 180 days before your bankruptcy filing date. You will receive a certificate of completion, which must be filed with your bankruptcy paperwork or within 15 days of filing.

Filing fees vary by chapter; as of late 2024, the Chapter 7 filing fee is $338, and the Chapter 13 filing fee is $313. These fees can sometimes be paid in installments, or a fee waiver may be available for Chapter 7 filers based on income. Your completed petition, along with the credit counseling certificate and any applicable fees, must be filed with the bankruptcy court in the correct district. While in-person filing is an option, electronic filing systems may be available in some courts.

Navigating the Post-Filing Process

After submitting the bankruptcy petition, several steps unfold. An immediate effect of filing is the “automatic stay,” which temporarily prevents most creditors from taking collection actions. This includes halting wage garnishments, lawsuits, and collection calls, providing immediate relief from creditor harassment.

A bankruptcy trustee is appointed to oversee your case. This trustee reviews your petition and schedules, verifies financial information, and administers your bankruptcy estate. The trustee’s role is to ensure compliance with bankruptcy laws and identify any non-exempt assets that could be liquidated to repay creditors.

A mandatory “341 meeting of creditors” is typically held 21 to 50 days after filing. This meeting, conducted by the trustee and not a judge, involves you answering questions under oath about your financial situation, assets, and debts. While creditors are invited, they rarely attend, and most meetings are brief, often lasting less than 10-15 minutes. You must bring identification and evidence of your Social Security number to this meeting.

Another requirement is completing a debtor education course, or personal financial management course, after filing but before debt discharge. This course focuses on budgeting and managing money post-bankruptcy to help prevent future financial difficulties. Certificates of completion for this course, which may cost around $10 to $50, must be filed with the court.

The final stage is debt discharge, a court order releasing you from personal liability for eligible debts. Medical debts are generally unsecured and typically discharged in both Chapter 7 and Chapter 13 cases. In Chapter 7, discharge usually occurs within three to six months after filing. For Chapter 13, discharge happens after you successfully complete your three-to-five-year repayment plan. Once discharged, creditors are legally prohibited from attempting to collect these debts.