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Can You File Bankruptcy on Medical Bills?

8 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

You can discharge some or all of your medical debt if you file for bankruptcy under Chapter 7 or Chapter 13. Medical debt is one of the most common reasons why individuals file for bankruptcy.

Medical bills are rarely expected. And a lot of people may not have enough disposable income or savings to handle an emergency medical situation. Another danger that comes with medical bills is that they tend to pile up. And this means that your financial situation can quickly get out of hand. If you are overwhelmed with medical debt, filing for bankruptcy may be an effective way out.

In most cases, you can’t limit your bankruptcy filing to just medical bills, because “medical bankruptcy” is not an official federal bankruptcy category. But you can get your medical debts discharged (forgiven) via a bankruptcy filing process. 

What Bankruptcy Chapter Should I File Under To Discharge Medical Debt?

When it comes to consumer bankruptcy, there are two common Chapters you can file under, Chapter 7 and Chapter 13. 

Filing Under Chapter 7 To Discharge Medical Debt

If you file under Chapter 7, you will be able to discharge all of your medical debt. There are no limits on how much debt you can include in your bankruptcy petition. 

Chapter 7 bankruptcy is known as a liquidation bankruptcy as it requires you to sell most of your existing assets to use for repayment of all or part of your debt. If you file for bankruptcy under Chapter 7, you can discharge your medical debt in as little as a few months. However, there are several things to take into account:

  • You must “qualify” for Chapter 7 bankruptcy. This type of bankruptcy filing is means-tested. This requires that your income must be below a specific threshold (typically, the state’s median income amount for a household of your size). 
  • You may need to sell some of your assets and property. The proceeds from the sale of your assets will go towards repaying your creditors. Some exemptions allow you to keep certain assets and property — but you should prepare to part with most of it. 

The process of filing for bankruptcy under Chapter 7 typically takes from four to six months, after which your remaining debt can be forgiven. 

Your Chapter 7 bankruptcy filing will stay on your credit report for ten years. Keep in mind that during this time you may find it difficult to apply for loans.

Filing Under Chapter 13 to Discharge Medical Debt

Chapter 13 focuses on restructuring your debt and making it more manageable. Under Chapter 13, your debt, income, and assets are evaluated and you then need to follow a court-mandated plan that repays some or all of your debt, including medical bills. You will typically be repaying your debts in monthly installments that shouldn’t exceed 15% of your disposable income. Here is what you need to take into account when filing for bankruptcy under Chapter 13: 

  • You are expected to repay your debts within three to five years. Filing under Chapter 13 creates a repayment plan that you need to complete within a set time. At the end of the repaying period, your remaining debt is typically discharged. 
  • You must have a regular income source.  If you restructure your debt, you will need to have a way of repaying your loans — even if you are doing it at a reduced debt level. 
  • Your debt cannot exceed a certain amount. Chapter 13 bankruptcy comes with debt limits, which adjust every few years. As of April 2022, these limits are as follows:
    • $465,275 for unsecured debt 
    • $1,395,875 for secured debt 

*Secured debt is debt that has collateral — for instance, a house loan. It means that if you can’t pay your debt back, the creditor can seize the related property to get their money back. 

*Unsecured debt is debt without collateral. While you may have accumulated this debt by purchasing a product or service, the creditor can not seize it to get their money back. Medical debt is unsecured debt. 

As long as your overall debt total; is lower than the limits above, you can have most of your medical debt dismissed under Chapter 13. 

If you file for bankruptcy under Chapter 13, the process may take several years. 

How to Repay Medical Debt Without Filing for Bankruptcy?

While filing for bankruptcy helps manage your medical debt, it can also affect your credit score and may prevent you from getting a loan in the future. This is why it’s important to consider alternatives to filing for bankruptcy before you make a final decision.

Here are some alternative options for managing medical debt: 

  • Negotiate the cost of your medical treatments. If you don’t have insurance, hospitals may be able to provide you with discounted prices for the services you need. 
  • Consider other financing options. Some hospitals offer financial assistance for complicated cases. You should consider contacting local charities for help. 
  • Develop a repayment plan with your medical provider. Some medical providers may be willing to work with you on a low or no-interest repayment plan.
  •  Search for low-interest loan sources. Some medical credit cards may come with 0% interest rates. You may want to consider personal loans with a low-interest rate. 

However, unfortunately, in some medical debt situations, a bankruptcy filing may be unavoidable. If you decide to file for bankruptcy to clear away your medical debts, consider scheduling a consultation with a bankruptcy attorney on the best route to follow. 

 Do You Need an Attorney to File for Bankruptcy?

No, you are not required to have an attorney to file for personal bankruptcy. However, if you are looking for the best way to discharge your medical debt in a bankruptcy filing, you will probably want an attorney to guide you through the process. If you get professional help early on, you may save lots of time and be able to repair your credit score faster.

A bankruptcy attorney will counsel you on the following:

  • Insurance coverage options for when you are in debt
  • Which bankruptcy chapter to file under to clear medical debt
  • Using Medicaid and Medicare during bankruptcy
  • What are your rights under the Affordable Care Act if you file for bankruptcy? Applying  for personal loans to use for medical expenses
  • Negotiating with creditors on debt repayment — and more. 

If you choose not to hire a lawyer and instead represent yourself in a bankruptcy filing, make sure to do proper research before making your filing. Bankruptcy cases often come with strict deadlines for filing paperwork and you will need to be fully aware of the documents required to prepare for your case. 

How Much Do the Services of a Bankruptcy Lawyer Cost?

Typically, a bankruptcy lawyer will charge you a flat fee for a bankruptcy filing case. The full amount you will need to pay depends on what bankruptcy chapter you are filing under, how complex your case is, how many court hearings a lawyer needs to attend, and more.

If you file for bankruptcy under Chapter 7, your overall fees may range from $1,000 to $3,500.

If you file for bankruptcy under Chapter 13, the associated legal costs will typically be higher — up to $6,000.

In some cases, you can pay by the hour. But in consumer bankruptcy cases, especially the ones dealing with medical debt, this is quite rare. You should be ready to pay extra if your attorney needs to spend more time working on your case. If so, they may charge you an additional per-hour fee, typically within the $300 to $500 range. 

How To Reduce Legal Costs With Unbundled Legal Services?

With most lawyers charging a flat fee for bankruptcy cases, your legal costs can get quite high. This is because you are paying for multiple services offered as one package. A bankruptcy filing typically includes preparing and filing paperwork, attending court hearings, negotiating with creditors, following up on procedures, and more. If you need a lawyer’s assistance with all of the above, these legal costs may be unavoidable. 

However, you may only need a lawyer for a specific task (like attending a court hearing). You can bring down the cost of your bankruptcy filing by using unbundled legal services. By working with Unbundled Legal Help, you can pay a fixed price for those select legal services you need. This way, your legal costs will be substantially lower: from $500 to $1500.

Unbundled legal services may not be the best option for every bankruptcy case. If you have a lot of debt and your situation is particularly complex, full legal representation will be the best way to go. You can still consult a lawyer from the Unbundled Legal Help network.  As our network of lawyers includes many smaller law firms and solo practitioners, you may still be able to benefit from lower legal fees.

We can connect you today to an unbundled local bankruptcy lawyer to discuss your case.

Feeling Lost in Medical Debts?

You can look into credit counseling courses (some are mandatory after you file for bankruptcy), or schedule a free phone consultation with a bankruptcy attorney if you are just starting your medical bankruptcy journey.

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