Medical Debt Can Be Handles With Bankruptcy Cases

Medical debt is one of the most common catalysts for bankruptcy filings in the United States. In bankruptcy proceedings, medical debt is typically treated as unsecured debt, similar to credit card debt or personal loans. Here’s how medical debt is handled in both Chapter 7 and Chapter 13 bankruptcy cases:

Chapter 7 Bankruptcy and Medical Debt:

• Dischargeable Debt: In Chapter 7 bankruptcy, medical debt is considered non-priority unsecured debt. This means it can be fully discharged, allowing the debtor to eliminate these obligations without paying them back.
• Liquidation: While Chapter 7 involves the liquidation of non-exempt assets to repay creditors, most personal assets are protected through exemptions. Therefore, debtors often do not lose any assets, yet they can still eliminate their medical debts.
• Example: If John files for Chapter 7 bankruptcy with $50,000 in medical debt and his assets are all protected by exemptions, he can potentially have all that medical debt discharged without having to sell his assets.

Chapter 13 Bankruptcy and Medical Debt:

• Repayment Plan: In Chapter 13 bankruptcy, medical debts are rolled into the repayment plan along with other unsecured debts. The amount paid towards these debts depends on the debtor’s income, expenses, and non-exempt assets.
• Proportional Repayment: Debtors pay a portion of their unsecured debts through the Chapter 13 plan. The exact percentage depends on their disposable income. At the end of the repayment period, any remaining medical debt is typically discharged.
• Example: If Sarah files for Chapter 13 bankruptcy and her repayment plan requires her to pay back 30% of her unsecured debts, her medical debts will be included in this calculation. If she successfully completes her payment plan, the remaining 70% of her medical debt will be discharged.

General Considerations:

• No Discrimination: Bankruptcy law does not discriminate between different types of unsecured debt—medical bills are treated the same as credit card debts, personal loans, etc.
• Impact on Credit: While bankruptcy can provide relief from medical debt, it also has a significant impact on one’s credit score. However, for many, the fresh start offered by bankruptcy outweighs the temporary credit challenges.
• Non-Dischargeable Debts: It’s important to note that not all debts can be discharged in bankruptcy. For example, alimony, child support, certain tax debts, and student loans are generally not dischargeable.

Bankruptcy can offer a significant reprieve for individuals overwhelmed by medical debt. Whether through Chapter 7 or Chapter 13, debtors have a pathway to either eliminate or manage medical debts in a way that aligns with their financial capabilities. Given the complexities of bankruptcy law, consulting with a bankruptcy attorney can provide valuable guidance tailored to an individual’s specific situation, ensuring they make informed decisions about addressing their medical debt through bankruptcy.

Medical Debt