When medical debt becomes crushing, bankruptcy may cross your mind. Medical bills are among the easiest debts to eliminate this way. But there are important things to understand first. You cannot file on medical bills alone, and there are steps and costs to weigh. This guide walks through how it works, the two main types, and the alternatives to try first. This is general information, not legal advice, so consult a bankruptcy attorney.
Medical Debt Is Easy to Discharge
Medical debt is unsecured, non-priority debt. Legally, that is the same category as credit card debt.
This makes it among the easiest debts to discharge, or wipe out, in bankruptcy. There is no limit on how much medical debt can be discharged. In fact, medical bills are a leading cause of bankruptcy in the United States.
You Cannot File on Medical Bills Alone
There is no such thing as āmedical bankruptcy.ā Bankruptcy is all-or-nothing.
It includes all of your dischargeable debts, such as credit cards and personal loans. You cannot pick and choose which to include. Bankruptcy also only covers debts that exist on your filing date. Bills that arrive later are not covered.
Chapter 7 vs Chapter 13
Individuals usually file one of two types. Each fits a different situation.
Chapter 7
Chapter 7 is liquidation. It discharges most unsecured debt, usually in about three to four months. To qualify, you must pass a āmeans testā showing your income is low enough. Many filers keep their property through exemptions.
Chapter 13
Chapter 13 is a repayment plan. It runs three to five years, and remaining eligible debt is discharged at the end. It suits people with higher income or assets who do not pass the means test.
Exemptions and the Automatic Stay
Many people fear losing everything in bankruptcy. Usually that does not happen. Exemptions protect a lot of property, such as a home or car up to certain limits. The limits vary by state.
Filing also triggers an āautomatic stay.ā This immediately stops most collection actions, including calls, lawsuits, and garnishment. It gives you breathing room while your case proceeds.
The Credit Impact
Bankruptcy has a lasting effect on your credit. A Chapter 7 stays on your report for 10 years from filing. A Chapter 13 stays for 7 years.
This can make borrowing harder and more costly for a time. Even so, many people rebuild their credit steadily afterward. Because of the long-term impact, bankruptcy is best considered after other options.
Try These Alternatives First
Before filing, exhaust the alternatives. They may resolve the debt without bankruptcy.
Apply for hospital financial assistance, which can forgive the bill entirely if you qualify. Negotiate or settle for less. Set up an interest-free payment plan. And check the itemized bill for errors. A nonprofit credit counselor can help you weigh your options.
The Required Steps and Cost
If you do file, the process has requirements. You must complete credit counseling from an approved nonprofit within 180 days before filing. A second debtor-education course is required before discharge.
There are also court filing fees and, usually, attorney fees. Costs vary, and some people qualify for fee waivers or low-cost legal aid. Because the rules are detailed and mistakes are costly, most people work with an attorney. Many offer free consultations.
Rebuilding After Bankruptcy
Bankruptcy is not the end of your financial life. Many people recover steadily.
Afterward, you can rebuild credit with a secured card, on-time payments, and careful budgeting. The impact of the filing lessens over time. Because bankruptcy clears overwhelming debt, people often find their finances more stable afterward than during the crisis.
What Bankruptcy Does and Does Not Erase
Bankruptcy clears many debts, but not all of them. Medical bills, credit cards, and personal loans are usually wiped out.
Some debts survive, however. These typically include child support, most student loans, recent taxes, and court fines. Knowing this helps set realistic expectations before you file, which is another reason to talk with an attorney.
Medical Bankruptcy FAQs
Can bankruptcy wipe out medical debt?
Yes. Medical debt is unsecured and among the easiest to discharge, with no limit on the amount.
Can I file bankruptcy on just my medical bills?
No. Bankruptcy includes all your dischargeable debts, not only medical bills.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 discharges debt quickly if you pass a means test. Chapter 13 is a three-to-five-year repayment plan for higher earners.
Will I lose my home or car?
Often not. Exemptions protect a lot of property, and the limits vary by state. An attorney can explain your stateās exemptions.
How long does bankruptcy stay on my credit?
Chapter 7 for 10 years and Chapter 13 for 7 years from the filing date.
Should I try other options first?
Yes. Charity care, negotiation, payment plans, and bill error review may resolve the debt without bankruptcy.
Do I need a lawyer?
It is strongly recommended, since the rules are complex. Many attorneys offer free initial consultations.
Does bankruptcy stop collection calls?
Yes. Filing triggers an automatic stay that immediately halts most collection actions.
