Can You File Bankruptcy on Medical Bills?
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.Read full bio
At a Glance
Health care spending in America reached more than $4 trillion in 2020, with 50% of Americans carrying medical debt. Nearly 60% of those with medical debt owe at least $1,000. Even those with health insurance may find the bills can add up quickly after a medical procedure or services.
These numbers are alarmingly high, which makes it no surprise that an estimated 60-65% of all bankruptcies filed are related to or include medical debt. In this article, learn more about:
Filing bankruptcy for medical bills
There’s technically no “medical bankruptcy,” but the term refers to bankruptcy filed due to medical debt. While in most cases one would not file for bankruptcy because of medical bills only, if they file for bankruptcy, they may include medical debt as part of all of their outstanding debts.
When you file for bankruptcy and list out all of your debts, the court analyzes what the debts are and prioritizes them for payment. For example, money you owe the government (like taxes), alimony, and child support may be prioritized first, as would secured debts like mortgage or car loans. Then, once those are handled, other bills are paid. These can include credit cards, utility bills, and medical debt.
Medical debt is considered unsecured debt, which means it’s not tied to any property or assets you own. When you file bankruptcy for medical debt, it’s unlikely you’ll lose assets you own that are tied to secured debt, like a house or car.
You can’t specifically file for “medical bankruptcy,” but there are essentially two types of bankruptcy you can file: Chapter 7 and Chapter 13. Both have different outcomes, advantages and disadvantages, so you must understand what they are to decide which is best for you to file.
NOTE: Medical providers can refuse to treat you after bankruptcy proceedings are concluded, so you may have to find another provider after this process.
Chapter 7 bankruptcy
When you file Chapter 7 bankruptcy, unsecured debt is discharged, which means it goes away and you owe nothing. But to pay this debt, the court will determine which of your assets to sell to repay your creditors. You may be able to keep some assets, like your car, but you’d lose property of value such as investments or jewelry.
Debt that is not discharged includes student loans, child support, taxes, and alimony, which stay on your credit report for 10 years. But your other debt, including medical bills, would be cleared.
On average, this takes about three to four months to complete.
Chapter 13 bankruptcy
Chapter 13 bankruptcy allows you the opportunity to keep more of your assets, because whatever debt isn’t discharged will be put on a three- to five-year repayment plan. The plan is determined by how much you can pay based on your income. Most of the time it will be less than what you owe.
Essentially acting like a consolidation loan, you make payments to a trustee who distributes the payments to creditors. This then stays on your credit report for seven years.
While it can take several years because you are repaying the debt through a payment plan, whatever unsecured debt that remains afterwards will be discharged.
What happens if I don’t pay my medical debt?
You’ll find that if you don’t pay your medical debt, there will be a number of consequences.
First, you have 180 days to pay the debt before it is reported to the credit bureaus and sent to a collections agency. Once that happens, your credit score will go down significantly, even up to 100 points or more for missing debt payments. If you still do not pay it, the collections agency can start contacting you to demand payment.
If you continue to avoid making payments, you could be sued by your provider. This could result in wage garnishment, when the court automatically takes a certain percentage of your income to put toward your debt (up to 25%). A judge may order a lien to be put on your car, home, or other assets, which means they can be used as collateral to satisfy that debt.
Even if you can’t pay your medical debt, it’s important to immediately contact your provider to attempt to negotiate. Ask about the ability to:
- Settle the debt for a lower cost
- Repay overtime with a payment plan
- Qualify for assistance programs (usually based on your income)
Alternatives to filing bankruptcy on medical bills
Before you file for bankruptcy, you should try other options to pay your debt such as:
- Budgeting. Spend some time analyzing your incoming and outgoing cash flow. How much income do you generate each month? How much are you spending on necessary expenses, such as rent/mortgage, utility bills, debts, groceries, and transportation? How much is spent on unnecessary expenses, such as shopping, going out to eat, or on subscriptions? Where can you cut unnecessary spending? Can you find more funds to put toward paying off debt?
- Earning extra income. If your job allows it, work extra shifts or overtime. Start a side hustle or monetize your hobbies. For example, if you’re really good at crocheting, start making items and selling them on a resale site like Etsy or Facebook Marketplace. If you have a particular skill or knowledge about something, brainstorm how you can sell that skill or knowledge. List items you no longer need or use for sale. Regardless of how you do it, all extra income should be put toward paying off your debt.
- Consolidating your debts. When you have multiple debts, it can be confusing to stay on top of it all. Consolidating your debt with a debt consolidation loan combines multiple debt payments into one, making it easier to manage. Ideally, the loan has lower interest rates than your original debt, saving you money in the long run.
- Negotiating with creditors. You should always contact the provider, medical facility, or collections agency and attempt to negotiate. They may take a lower payment if you can pay it now, or they may offer a repayment plan so you can make smaller payments over time. Some facilities provide financial assistance programs for those with low income. It never hurts to understand your options.
- Attempting a debt repayment method. Methods such as the debt snowball method and debt avalanche method can make repaying your debt easier. Choose one that makes sense for your situation.
- Getting help from a credit counseling agency. These non-profit agencies can help negotiate with the medical facility or collections agencies on your behalf. They can also provide counseling to help you avoid getting in this situation in the future.
Does medical bankruptcy hurt your credit score?
If your debt is discharged into bankruptcy, your credit score could drop by 200 points or more, depending on how high your score is to begin with. In some cases, your score will start to improve after the debt is discharged, but bankruptcy can impact your score for seven to 10 years.
What assets are protected from medical bankruptcy?
Because medical debt is unsecured, which means there is no collateral associated with it, your home and car are likely protected regardless of which type of bankruptcy you file. However, if you file Chapter 7 bankruptcy, other assets you have such as investments, art, jewelry, etc. can be seized to repay the debt.
Can you lose your house in medical bankruptcy?
It is very unlikely you’ll lose your house when you file bankruptcy unless your debt is associated with your mortgage. In that case, your home could be foreclosed on. However, this will not be due to any medical debt you owe.