Is Medical Debt Dischargeable in Bankruptcy?

Medical debt refers to financial obligations incurred due to healthcare services, treatments, or medical supplies. This can include bills from hospitals, doctors, laboratories, and ambulance services, as well as prescription costs. Such debt often arises unexpectedly from emergencies, chronic conditions, or significant procedures, even for individuals with health insurance.

The primary method for individuals to obtain relief from overwhelming medical debt is through personal bankruptcy. Medical debt is generally categorized as unsecured debt, meaning it is not tied to any specific asset like a house or car. This classification makes medical debt eligible for discharge in most personal bankruptcy cases.

Dischargeability of Medical Debt in Bankruptcy

Debt discharge in bankruptcy signifies that a debtor is no longer legally obligated to repay certain debts. Medical debt typically qualifies for this process, offering a path to financial relief. It is generally considered unsecured, non-priority debt, similar to credit card obligations or personal loans, meaning it does not have collateral attached.

The Bankruptcy Code outlines which types of debts can be discharged, and medical bills fall within this scope. This stands in contrast to certain other obligations, such as most tax debts, child support, or student loans, which are often non-dischargeable. The two primary consumer bankruptcy chapters, Chapter 7 and Chapter 13, serve as the mechanisms for discharging medical debt, each providing a distinct pathway.

Navigating Chapter 7 for Medical Debt

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, provides a direct route for discharging medical debt. Eligibility for Chapter 7 is determined by a “means test,” which assesses an individual’s income and expenses to confirm they do not have the ability to repay their debts. If a debtor’s current monthly income for the six months prior to filing falls below the median income for a household of their size in their state, they generally pass the means test and can proceed with Chapter 7.

A bankruptcy trustee is appointed to oversee the Chapter 7 case, reviewing the debtor’s assets and financial affairs. In most individual Chapter 7 cases, referred to as “no-asset” cases, debtors retain all their property because it is protected by exemptions.

Medical debts, like other unsecured debts, are listed in the Chapter 7 petition, and upon successful completion of the process, they are typically discharged completely within a few months. This discharge eliminates the debtor’s personal liability for these obligations, providing a fresh financial start.

Navigating Chapter 13 for Medical Debt

Chapter 13 bankruptcy, known as reorganization bankruptcy, offers an alternative for individuals with regular income who seek to repay their debts through a structured plan. Eligibility for Chapter 13 depends on meeting specific income and debt limits. Debtors propose a repayment plan, typically spanning three to five years, during which they make regular payments to creditors.

Medical debts are incorporated into this repayment plan. Debtors often pay only a portion of their medical debt through the plan, with the remaining balance discharged upon successful completion of all payments.

Chapter 13 can be advantageous for debtors who possess significant assets they wish to protect from liquidation, or for those whose income exceeds the Chapter 7 means test limits.

Preparing for a Bankruptcy Filing

Initiating a bankruptcy filing requires thorough preparation and the gathering of financial documentation. Debtors must compile records of their income, including recent pay stubs, and detailed statements of all household expenses. A complete inventory of assets, such as real estate, vehicles, bank accounts, and retirement funds, along with their estimated values, is also necessary.

Debtors need to create a comprehensive list of all creditors, providing their names, addresses, and the exact amounts owed for each debt, including medical bills, credit cards, and loans. Recent tax returns, typically for the past two years, must be secured.

Additionally, all individual bankruptcy filers are required to complete a pre-filing credit counseling course from an approved provider, obtaining a certificate of completion before the petition can be submitted.

Steps in the Bankruptcy Process

After the bankruptcy petition is prepared, the formal legal process begins. The first step involves filing the complete petition with the bankruptcy court, which immediately triggers an “automatic stay.” This legal injunction temporarily halts most collection actions by creditors, including lawsuits, wage garnishments, and collection calls.

Within approximately 20 to 45 days after filing, debtors must attend a mandatory 341 Meeting of Creditors, often held virtually or in a trustee’s office. During this meeting, the appointed bankruptcy trustee and any attending creditors can question the debtor under oath about their financial affairs and the accuracy of their filed documents.

Following this meeting, and before receiving a discharge, debtors are generally required to complete a debtor education course, also known as a personal financial management course, from an approved provider.

Assuming all requirements are met, the court typically grants the discharge order in Chapter 7 cases about 60 days after the 341 meeting, usually within four to six months of the initial filing. For Chapter 13 cases, the discharge occurs after all plan payments are completed, which can take three to five years.