Facing mounting medical debt can feel overwhelming, prompting many individuals to consider filing for bankruptcy. While bankruptcy is a legal process that seeks to provide relief from financial burdens, it is important to understand how it interacts with medical debt.
Various factors determine whether medical debt is dischargeable through a consumer bankruptcy filing.
Chapter 7 bankruptcy and medical debt
Chapter 7 bankruptcy is a “liquidation” bankruptcy and a common route for individuals seeking a fresh start. When it comes to medical debt, Chapter 7 may be able to discharge the outstanding balances. However, not all debts receive the same treatment. Whether medical debt is dischargeable depends on various factors. Some of them include the specific details of the debt and the debtor’s overall financial situation.
Certain types of medical debt may not be dischargeable through bankruptcy. For instance, debts arising from injuries caused by driving under the influence or intentional harm may be exempt. Additionally, if a debtor engaged in fraudulent or dishonest behavior related to medical expenses, those debts may also not be eligible for discharge.
Chapter 13 bankruptcy and medical debt
Chapter 13 bankruptcy is a “reorganization” bankruptcy and involves creating a manageable repayment plan rather than liquidating assets. Under Chapter 13, medical debt may be part of the repayment plan, allowing debtors to gradually settle their outstanding balances over time. While Chapter 13 does not provide an immediate discharge like Chapter 7, it can create a way for filers to manage medical debt without the threat of aggressive collection actions.
According to Forbes, a 2019 study of almost 1,000 Americans who filed for bankruptcy showed that two-thirds filed because of an inability to pay medical bills. Understanding the nuances related to medical debt and bankruptcy is necessary for individuals seeking a financial fresh start in the face of overwhelming medical expenses.