Can You Clear Medical Debt in Bankruptcy?

Yes, medical debt can be discharged in bankruptcy. Here’s a detailed overview of how this works:

Types of Bankruptcy

There are primarily two types of bankruptcy filings that individuals use to discharge debt: Chapter 7 and Chapter 13.

1. Chapter 7 Bankruptcy:
   • Liquidation Bankruptcy: This type of bankruptcy involves the liquidation of a debtor’s non-exempt assets to pay off creditors. However, many personal assets are often exempt, allowing individuals to keep essential property.
   • Discharge of Debts: Most unsecured debts, including medical debt, are discharged under Chapter 7. This means that once the bankruptcy process is complete, the debtor is no longer legally obligated to pay these debts.
   • Eligibility: To qualify for Chapter 7, debtors must pass a means test, which assesses their income and expenses to determine if they have the means to repay a portion of their debts.
2. Chapter 13 Bankruptcy:
   • Reorganization Bankruptcy: This type involves creating a repayment plan to pay off a portion of the debts over a period (typically three to five years). The remaining unpaid debt is discharged at the end of the repayment period.
   • Repayment Plan: Under Chapter 13, the debtor proposes a repayment plan to the court, detailing how they will pay off their debts. Medical debts are included in this plan and are treated as unsecured debts.
   • Eligibility: Chapter 13 is available to individuals with a regular income who can commit to a repayment plan.

Impact on Medical Debt

• Dischargeable Debt: Medical debt is considered unsecured debt, similar to credit card debt, and is generally dischargeable in both Chapter 7 and Chapter 13 bankruptcy.
• Collection Efforts: Filing for bankruptcy triggers an automatic stay, which halts all collection efforts, including those related to medical debt. Creditors cannot pursue collection activities while the bankruptcy case is active.

Process of Filing for Bankruptcy

1. Credit Counseling: Individuals must complete a credit counseling course from an approved provider before filing for bankruptcy.
2. Filing the Petition: The debtor files a bankruptcy petition with the court, including detailed information about their debts, assets, income, and expenses.
3. Automatic Stay: Upon filing, the automatic stay goes into effect, providing immediate relief from debt collection efforts.
4. Meeting of Creditors: A meeting (called a 341 meeting) is held where creditors can ask questions about the debtor’s financial situation.
5. Discharge: If the court approves the bankruptcy filing, the medical debts, along with other qualifying debts, are discharged.

Considerations and Consequences

• Credit Impact: Filing for bankruptcy significantly impacts the debtor’s credit score and remains on their credit report for seven to ten years, depending on the type of bankruptcy.
• Legal and Filing Fees: There are costs associated with filing for bankruptcy, including attorney fees and court filing fees.
• Long-Term Financial Health: While bankruptcy can provide relief from overwhelming debt, it also requires careful financial planning and discipline to rebuild credit and financial health.

Medical debt can be cleared through bankruptcy, providing a viable solution for individuals struggling with overwhelming healthcare-related expenses. Chapter 7 and Chapter 13 bankruptcy offer different approaches to discharging medical debt, each with its own eligibility requirements and processes. Consulting with a bankruptcy attorney can help individuals understand their options and navigate the legal complexities of the bankruptcy process.