What is Medical Bankruptcy and How Does It Work?

The Bankruptcy Code does not cover medical bankruptcy. Therefore, the federal government does not provide it as a particular kind of bankruptcy relief. Instead, medical bankruptcy is the phrase used to characterize bankruptcy brought on by medical debt. 

Astronomically expensive medical expenses burden many Americans as a result of excessive healthcare prices. When medical expenses and debt become too much to bear, some people resort to bankruptcy to get out of debt.

This essay will debunk some popular medical bankruptcies myths and provide answers to the following questions:

  • What does it mean to declare medical bankruptcy?
  • What is the procedure for declaring medical bankruptcy?
  • What proportion of bankruptcies are caused by medical problems?
  • Is it possible to get rid of medical debt via bankruptcy?
  • Finally, what are some alternatives to bankruptcy when it comes to getting rid of medical debt?

What Does It Mean to Declare Medical bankruptcy?

The phrase “medical bankruptcy” is a non-legal word for bankruptcy caused by medical debt.

Medical bankruptcy is not covered by any particular chapter of the Bankruptcy Code. However, the phrase “medical bankruptcy” has gained popularity in recent years due to a rise in the number of people applying for bankruptcy owing to medical debt. 

While the actual magnitude of the issue is debatable, there is no question that massive medical expenditures may lead to bankruptcy.

Despite having health insurance, many people have been saddled with medical debt due to expenses not covered by their policy’s small print. As a result, some people have resorted to bankruptcy as a solution to their financial problems. Individuals may file for Chapter 7 or Chapter 13 bankruptcy relief to get rid of their medical debt.

What is the procedure for declaring medical bankruptcy?

Medical debt may be erased via a Chapter 7 or Chapter 13 bankruptcy petition, even though “medical bankruptcy” is not a kind of bankruptcy relief.

You can’t file for “medical bankruptcy” on its own. The debtor is not required to disclose the reason(s) for declaring bankruptcy anywhere on the bankruptcy papers. However, bankruptcy may still be an option for you if you’re having trouble paying your medical expenses. 

Medical debt develops as a result of unpaid medical expenses. Bankruptcy may be used to discharge medical debt. Those who need to file for bankruptcy due to medical debt may do so under Chapter 7 or Chapter 13 of the bankruptcy code.

After the court liquidates your non-exempt assets, you may discharge your medical debt under Chapter 7. Then, after completing a three- to a five-year repayment plan, your medical debt is dismissed under Chapter 13. 

The qualifying requirements for Chapter 7 and Chapter 13 are different; your income and other variables may play a role in deciding whether you qualify for Chapter 7 or Chapter 13. (You may learn more about the various kinds of bankruptcy and which one you qualify for by visiting this page.)

What Proportion of Bankruptcies are Caused By Medical Problems?

In a large number of instances, medical debt is both a direct and indirect cause of bankruptcy.

We don’t know how many people file for bankruptcy because of medical debt. The number of people filing for bankruptcy due to medical debt will vary from year to year, depending on various factors such as economic conditions, political policy changes, and so on. 

During the discussions over Obamacare, healthcare reform supporters claimed that medical expenses were the cause of more than half of all bankruptcies in the United States. 

That figure has been debunked by much research. Instead, they claim that “medical debt is a small but growing component of consumer bankruptcy debt.” Regardless, there is little question that medical debt-related bankruptcy is a significant issue in the United States.

Is it Possible to Get Rid of Medical Debt via Bankruptcy?

Yes, medical debt is a kind of obligation that may be discharged via bankruptcy.

Medical debt is classified as unsecured debt under bankruptcy law. Unsecured debt is defined as debt that is not secured by any property or assets that you possess. Bankruptcy is often used to discharge unsecured obligations such as credit card debt, medical debt, and so on.

On the other hand, secured debts are debts secured by assets that the creditor may seize if the debt is not paid. A house mortgage is an example of a safe debt; if you default on your payments, the bank may foreclose on your home.

You are no longer responsible for repaying your medical debt if you file for bankruptcy and have it discharged. Once a medical bill has been dismissed, the hospital, doctor’s office, or collection agency can no longer send you notifications or contact you to collect the amount. (Learn more about the effects of bankruptcy on your debts.)

What are Some Alternatives to Bankruptcy When it Comes to Getting Rid of Medical Debt?

In terms of repayment, medical creditors are usually simpler to deal with than creditors or collectors of other types of debt.

If the medical debt is the main reason you’re contemplating bankruptcy, there are several other options you should look into first. Unlike repaying other types of debt, medical creditors are generally more ready to negotiate with you on repayment and may even take a lesser sum. 

Many medical offices and hospitals will keep the bill in their billing departments for as long as possible before forwarding it to a collector, if at all. In addition, medical debt is less likely to harm your credit score than other kinds of debt since medical creditors seldom belong to credit reporting bureaus. 

As a result, there is a strong incentive to call your healthcare provider or hospital to work out a payment plan. It’s difficult to live with medical debt. It may be helpful to consult with a bankruptcy attorney to get a better knowledge of your alternatives.

Speak with a Seasoned Bankruptcy Lawyer Right Now.

This essay is meant to be both educational and useful. Even routine legal issues, however, may become complicated and unpleasant. A competent bankruptcy attorney can help you with your specific legal requirements, explain the law, and represent you in court. 

Contacting a local bankruptcy attorney to discuss your particular legal circumstances is the first step.