Can You File Bankruptcy on Medical Bills? How Medical Debt Is Treated

Yes. You can file bankruptcy on medical bills. They're unsecured debts, meaning your creditors don't have collateral such as a car or home to offset their losses.

Although courts consider medical creditors to be low priority when it comes to reimbursement, you may be able to clear the debt if you qualify for Chapter 7 bankruptcy, or get an affordable payment plan under Chapter 13.

Be aware that bankruptcy has legal and financial consequences, and it doesn’t help you with future debt, so consider less impactful alternatives like debt consolidation, credit counseling or direct negotiations with your creditors before you file.

Key Takeaways

Here's what to know about whether you can file bankruptcy on medical bills.

• Yes, you can file bankruptcy on medical bills. Medical debt is unsecured debt, so it's potentially eligible for discharge in Chapter 7 or restructuring in Chapter 13, depending on factors such as your expenses, assets, income and others.

• Chapter 7 can wipe out eligible medical debt fast. Most cases resolve in about two to four months if you pass the means test, which compares your income to your state's median income for a household of the same size.

• Chapter 13 reorganizes medical debt into a repayment plan. You repay some or all of what you owe over three to five years while keeping your assets, with remaining eligible balances discharged at the end.

• Bankruptcy only covers debt you already have. Bills you run up after you file aren't included, so timing matters before you file.

• It stays on your credit report for years. Chapter 13 is typically removed after seven years and Chapter 7 after up to 10, though the impact fades over time.

• Try lower-impact options first. Itemized-bill review, hospital financial assistance, nonprofit credit counseling and debt consolidation may resolve the debt with less damage to your credit.

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Does Bankruptcy Clear Medical Debt?

Bankruptcy can clear or reduce medical debt. However, it’s not automatic. Medical debt is typically unsecured debt, and how it gets resolved depends on the type of bankruptcy you file and your financial situation.

• Chapter 7 bankruptcy could result in the debt being discharged.

• Chapter 13 bankruptcy would restructure it to allow you to pay it off over three to five years.

• A trustee and creditors may review your debts, along with income assets and other ongoing expenses to approve your repayment plan or another way to best handle the debt, under the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.

Bankruptcy can resolve existing debt, but it doesn't affect future medical bills. Filing too early might leave you with new debt and fewer options for relief.

When Bankruptcy Can Eliminate Medical Bills

Medical debts are unsecured debts that are usually eligible for discharge, but whether they're discharged or restructured depends on the type of bankruptcy you file and your financial situation.

If you pass the “means test” for Chapter 7 bankruptcy eligibility, the court might clear the debt. Otherwise, you'll have to file Chapter 13 bankruptcy, which restructures debt and creates a repayment plan. In either case, bankruptcy provides relief for current debt – bills that come in later aren't covered.

Chapter 7 vs. Chapter 13 for Medical Bills

Chapter 7 and Chapter 13 are the two types of bankruptcy available when the medical debt simply becomes unmanageable. Both provide relief, but they do so in different ways.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy can discharge your debt, which essentially cancels it and your obligation to repay it. Some people prefer it over Chapter 13 for that reason, but you might have to meet eligibility criteria, called a means test, to qualify.

In general, the test compares your income with your state's median income relative to your household size. So if you have an income higher than that, the courts may evaluate your expenses and income a little more closely to see if Chapter 7 is right move.

Although the Chapter 7 process is relatively quick, it has a major downside – the court typically sells a person’s assets to reimburse creditors before discharging the remaining debt. However, state- and federally mandated exemptions let you keep personal and household essentials, some retirement savings and possibly your home and car if your payments are up to date.

Chapter 13 Bankruptcy

Rather than cancel out your debt, Chapter 13 bankruptcy restructures it to make it more manageable. With this type, the court typically groups your medical debt with your other unsecured debts and creates a three- to five-year repayment plan. You make one monthly payment to the court-appointed trustee, and the trustee distributes it to the creditors.

A Chapter 13 bankruptcy is a lengthy process because of the long repayment period, but it might be a good compromise if it lets you keep your home and other assets.

Here's a side-by-side look at Chapter 7 and Chapter 13 bankruptcy.

What Bankruptcy Can and Can't Do for Medical Debt

Bankruptcy can provide relief for overwhelming medical debt, but it’s not a perfect solution.

What Bankruptcy May Help With

Bankruptcy can be useful for:

• Discharging eligible medical debt. Chapter 7 discharges whatever remains after creditors have been paid from the sale of assets. Chapter 13 discharges debt not covered by the repayment plan.

• Stopping collections activities, including collection calls and letters and lawsuits.

• Consolidating eligible debt. Chapter 13 bankruptcy combines your unsecured debt and lets you pay toward the total balance with one payment each month.

What Bankruptcy May Not Fix

Bankruptcy can’t help with the following:

• Medical bills you incur after you file for bankruptcy. Bankruptcy helps with existing debt, not future debt.

• Debts that are ineligible for discharge, including child support, alimony, government penalties, student loans and some taxes.

• Ongoing healthcare and insurance costs. Since credit counseling is required before filing for either Chapter 7 or Chapter 13 bankruptcy, this can help you with budgeting to avoid new medical debt.

• Rebuilding your credit after bankruptcy. Chapter 13 bankruptcy stays on your credit report for seven years, and Chapter 7 stays on for 10 years. However, the negatives do have less impact over time, especially if you pay bills on time and keep credit utilization low. 

Medical Debt vs. Other Debt

Bankruptcy courts treat medical debt the same way they treat credit cards and other low-priority unsecured debt. Here's what's considered:

1. First priority is to pay secured creditors, like mortgage and auto lenders.

2. Next priority are unsecured debts, which include some that are ineligible for discharge, such as child support, student loans and some taxes.

3. There's often not enough money left to pay medical and other low-priority creditors.  

What To Do Before Filing Bankruptcy for Medical Bills

Bankruptcy is a complicated legal process. A step-by-step approach makes it less intimidating.

Review the Bill

Request itemized copies of your unpaid bills if you don’t already have them. Review the services, fees and insurance coverage to make sure they’re accurate. Contact the provider if you spot a mistake or need clarification.

Ask About Assistance

Many hospitals have financial assistance programs that can reduce the amount you owe. The law requires them to provide a free written program description and criteria if you ask for one.

Your other care providers might be willing to work with you as well. Ask about hardship programs and discounts you might qualify for. Also try to work out a payment plan, especially if you want to continue using that provider.

Look at Your Overall Debt

If medical bills are your only source of burdensome debt, a combination of assistance and direct negotiation with your providers might get you the relief you need. But if medical debt was the tipping point for credit card and other debt you’ve gradually accumulated, you might need professional guidance in figuring out the best way to tackle it.

Get Professional Guidance

A nonprofit credit counselor is a good place to start. In addition to helping you with budgeting, the counselor can work with your creditors to set up a repayment plan. The plan consolidates your debts so you can pay them off with one payment each month, usually over three to five years – about the same as for Chapter 13 bankruptcy, but with less impact on your credit. 

If you don’t think you can afford to repay the debt, or if your creditors are threatening to sue, contact an attorney right away. They can determine whether or not you’re a good candidate for bankruptcy, and advise as to what your next step should be.

Final Take

Bankruptcy can clear most medical bills, but whether it's the right choice for you depends on your overall financial situation. Review your bills for errors, then ask your care providers about financial assistance and payment plans.

If that doesn't work, and the medical debt is quite large or is just one of several debts you're struggling with, consult with a nonprofit credit counselor or attorney for professional advice on the best path forward. 

FAQs

Here's more information to help you navigate your medical debt.

Can you file bankruptcy for only medical bills?

Yes. Medical debt is eligible for discharge through Chapter 7 bankruptcy, or restructuring through Chapter 13 bankruptcy. 

Do medical bills go away in Chapter 7 bankruptcy?

Yes. The trustee will sell your assets that aren't protected under the law and repay creditors with the proceeds. The court discharges the remaining debt.

What happens to medical collections after bankruptcy?

Most collection activities stop once you file bankruptcy. That’s even true for serious legal proceedings, such as lawsuits.

Should I pay medical bills before filing bankruptcy?

You’ll need to talk with an attorney to find out the benefits and risks of paying creditors before you file, based on your specific situation and the rules imposed by your local court.

Can a hospital still bill me after bankruptcy?

No, not if the debt has been discharged. Discharged means the debt no longer exists.

Key Terms

• Medical debt: Money owed for healthcare services, treated as low-priority unsecured debt in bankruptcy, similar to credit card balances.

• Unsecured debt: Debt not backed by collateral such as a home or car, which makes it generally eligible for discharge.

• Chapter 7 bankruptcy: A liquidation bankruptcy that discharges most eligible unsecured debt, often within four to six months, after you pass a means test.

• Chapter 13 bankruptcy: A reorganization bankruptcy for people with regular income that repays debt over three to five years while letting you keep your assets.

• Discharge: The court order that legally eliminates eligible debts and releases you from the obligation to repay them.

Sources

• U.S. Courts — Chapter 7 Bankruptcy Basics: Primary source on Chapter 7 liquidation, the means test and which debts get discharged.

• U.S. Courts — Chapter 13 Bankruptcy Basics: Primary source on the three- to five-year repayment plan and how unsecured debts like medical bills are treated.

• U.S. Courts — Discharge in Bankruptcy: Explains what a discharge does, its timing and the debts that survive it.

• Consumer Financial Protection Bureau — What should I do if I can't pay a medical bill? Backs the pre-filing steps — verifying the bill, disputing errors and seeking financial help.

• IRS — Financial Assistance Policies (FAPs): Confirms nonprofit hospitals must maintain a written financial assistance policy and publicize it.

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