Illness or injury can strike without warning, and when it does, it can devastate finances. As a result, medical bills have traditionally been one of the leading causes of personal bankruptcy in the United States. If you cannot pay your medical bills and still afford your basic living expenses, your best choice might be to file for bankruptcy.
Choosing a Bankruptcy Chapter
A bankruptcy case begins when the person who owes money (the debtor) files official bankruptcy forms in federal bankruptcy court under either a Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy. Sometimes called a liquidation bankruptcy, debtors can keep (exempt) a certain amount of property in a Chapter 7 case. Debtors with unprotected (nonexempt) property understand that the assets will get sold, and the proceeds divided among creditors. In return, the debtor receives a discharge—a court order barring creditors from collecting on the debts qualified to get wiped out in the bankruptcy case.
Chapter 13 bankruptcy. Debtors can also file a Chapter 13, or wage earner’s, bankruptcy, and pay into a repayment plan for three to five years. In exchange, debtors can keep nonexempt property that would be sold in a Chapter 7 bankruptcy. At the end of the payment plan, debtors receive a discharge of all qualifying debt that wasn’t completely repaid in the plan. The plan payment amount will depend on your income, assets, whether you have debts that must be paid (such as some taxes and support arrearages) and what you’re trying to accomplish with the bankruptcy filing.
How Can Bankruptcy Help With Medical Bills?
Since medical care is more personal than other debts, you may feel worse about not being able to pay your doctor or dentist than you do about not being able to pay your credit card company. However, when you can’t pay your debt, it makes sense to utilize bankruptcy. The purpose of bankruptcy is to help those overwhelmed with debt get back on their feet.
Medical bills, known as unsecured debts, aren’t guaranteed by collateral, such as a house or a car. The creditor doesn’t immediately have the right to take a particular piece of property without doing more (see Delinquent Debt Lawsuit: What to Expect When a Creditor Sues You). In bankruptcy, such debts are in the lowest payment priority category.
Here’s what will happen:
- In Chapter 7 bankruptcy, the court will discharge all of your medical bills.
- In Chapter 13 bankruptcy, medical creditors will likely receive a small portion of the owed balance, if any, and the unpaid amount will get wiped out at the end of the plan period.
Will I Still Be Able to See My Health Care Provider?
One big worry many people have when including medical bills in bankruptcy is whether they will still be able to see their health care provider after the case ends. Your state’s laws might govern when medical providers can terminate patients. It’s possible for medical providers to stop a treatment relationship for an unpaid medical bill, as long as the provider follows the state’s termination rules. Many providers, understanding their patients’ financial situation, don’t terminate patients due to unpaid bills. They also might not want to lose future business.
After bankruptcy, some smaller medical providers might ask you to pay cash up front for new services. However, they can’t ask you to pay for old bills that were discharged in the bankruptcy case. Also, federal law doesn’t allow emergency rooms to refuse to treat you or your family members because you discharged a bill to that hospital in bankruptcy, and medical providers can’t withhold your medical records.
Questions for Your Attorney
- Should I file a bankruptcy case for medical bills?
- What form of bankruptcy do I qualify to file?
- Do I have options other than filing for bankruptcy?