5 Things to Know Before Filing for Medical Bankruptcy

Medical bankruptcy is an unofficial term for using the legal procedure of bankruptcy to get rid of medical debt that you can’t repay. Over the last decade, rising medical debt has led to an uptick in medical bankruptcies in the U.S.

Many Americans cannot pay off their medical debt. The high cost of care has left tens of millions of people uninsured or underinsured. This has contributed to some having to file for bankruptcy.

Before choosing this option, it helps to understand what “medical bankruptcy” is and how you may be able to prevent it, and the medical debt that comes before it.

What does medical bankruptcy mean?

Bankruptcy allows you to either get rid of debt or develop a realistic repayment plan. You can file for medical debt bankruptcy if you are overwhelmed by the total cost of your medical bills and need a fresh start. Once you declare bankruptcy, creditors cannot pursue you for medical debt repayment.

While you can discard medical debt during bankruptcy, it isn’t the only debt. You also can clear out credit card debt, personal loans, and other forms of debt if you have them.

Yet, bankruptcy cannot clear all debts. For example, you cannot use bankruptcy to discharge child support, alimony, and, in some cases, student loans.

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​​Bankruptcy — even when due to medical bills — hurts your credit score and can stay on your credit history report between 7 and 10 years, depending on the type of bankruptcy you file for.

Filing for bankruptcy typically also increases your lending risk in the eyes of lenders, making it harder to get financing for big purchases, including car loans or homes.

There is some good news, though. You have some new rights, thanks to recent changes in how credit reporting agencies treat medical debt:

• As of July 1, 2022, the three major credit reporting agencies — Equifax, Experian, and Transunion — no longer include paid medical debt on your credit report. They also can’t include debt less than a year old. In 2023, credit agencies will stop reporting medical debt under $500 on credit reports.

• These credit reporting agencies also have to wait one year before reporting that a medical bill has gone to collections.

Below are five things to know about so-called medical bankruptcy.

1. Medical bankruptcy occurs when you file a legal petition

The bankruptcy process starts when you file a petition with a U.S. federal court that hears bankruptcy cases. You may file alone or with a spouse.

Depending on the type of bankruptcy you file, you may have to give up certain assets or adhere to a repayment plan.

You can file for bankruptcy with a lawyer, or you can file pro se, which is the term for filing without a lawyer.

For affordable representation, check with:

• The American Bar Association

• Legal Services Corporation

You also can look into nonprofits that specialize in helping people manage medical debt and bankruptcy, such as:

• RIP Medical Debt

• Upsolve

Before filing for bankruptcy, you must attend credit counseling. After you file, you are also required to receive debtor education.

2. There are two main kinds of consumer bankruptcy. 

Chapter 7 and Chapter 13 are the two commonly used forms of consumer bankruptcy.

Chapter 7 allows consumers to sell — or liquidate — property to pay medical debts. Filing for this costs $335. Chapter 13, instead, allows you to follow a 3- to 5-year court-ordered repayment plan. Filing for Chapter 13 bankruptcy costs $310.

A major difference between the two is the means test requirement for Chapter 7. Your monthly income should be below your state's median income to qualify for Chapter 7 bankruptcy.

If you have a regular income and can repay the debt over time, you may be a candidate for Chapter 13 bankruptcy instead.

3. You should consider filing for medical bankruptcy when there are no other options

If you are considering bankruptcy, review the tradeoffs. Also make sure you’ve advocated for yourself first.

Before filing, check into options like:

• Help from a credit counseling agency. Work with a nonprofit credit counseling agency. They can help you create a budget to tackle medical debt or negotiate with a hospital for a zero-interest repayment plan.

• Debt consolidation. Consider debt consolidation if your debt has already gone to collections, and you have other medical debt. This can reduce your interest and ensure you only have one payment.

• Debt settlement. Ask about paying debt collectors a lump-sum payment that’s less than the full amount to settle the debt.

Jay Zigmont, a certified financial planner and founder of investment advisory company Childfree Wealth in Water Valley, Mississippi, warns that bankruptcy may not be the right solution for debt problems. His advice is first to assess your medical condition to determine your needs.“It’s different if you’re still [having] medical issues versus if you are past it,” Zigmont told GoodRx Health. “If you had an event, you had an accident, and you’re past it, now this becomes a discussion about financial aid, charity care, other things to negotiate down the bill.”

If you’re currently managing an illness, Zigmont advises seeing if you qualify for Medicaid and researching state services that can offer financial support.

4. Medical debt can sometimes be forgiven

Depending on your income and the amount of the debt, you may qualify for debt forgiveness from the hospital or healthcare provider.

Speak with the hospital’s patient billing department about medical debt forgiveness options. While debt forgiveness isn’t guaranteed, they can inform you of any help they can offer.

Also, all nonprofit and public hospitals must offer and promote financial help programs. It’s possible to get some relief through a program like this.

5. Sometimes medical debt can be prevented

There are some tactics you can use to help prevent medical debt:

• Negotiate. Sometimes, you can negotiate with a healthcare provider on pricing.

• Seek financial help. Many public and nonprofit hospitals are lawfully required to offer financial assistance programs.

• Ask for a payment plan. Some hospitals may allow you to break the debt into a payment plan. You should receive a discount if you offer to pay a lump sum.

• Work with a medical billing advocate. Organizations like the Patient Advocate Foundation and California’s Health Consumer Alliance can help you resolve billing problems for free if you qualify.

• Ask for the Medicare rate. Healthcare providers should know the Medicare rate for procedures. Ask to pay this amount, as it can mean paying less for healthcare charges.

• Set up a health savings account (HSA). If you have a qualifying high-deductible health plan, consider saving pre-tax money in an HSA for eligible medical expenses. You can add up to $3,650 for solo coverage and $7,300 for a family in 2022.

• Assess your health coverage. Having adequate health insurance is critical to preventing medical bills.

• See if you qualify for help paying medical bills from these organizations: 

• HealthWell Foundation 

• Cancer Care Co-Payment Assistance Foundation 

• State programs like Temporary Assistance for Needy Families or Supplemental Security Income

• The Patient Access Network Foundation

• The United Healthcare Children’s Foundation

Sometimes, states may also have funds to help cover healthcare or disability costs, says Zigmont.

What are some ways people become bankrupt by medical debt?

Research suggests these are some of the major reasons individuals file for bankruptcy:

• Job loss

• Divorce

• Medical debt, which may include lost income due to illness

Some people take on large amounts of medical debt that may spur the need for bankruptcy because of reasons like:

• A one-time or unexpected medical or dental bill

• A catastrophic medical event

• Chronic illness and the need for long-term treatment

• Lack of affordable health care

Why trust our experts?

Written by:

Chanell Alexander, MBA

Chanell Alexander is a freelance personal finance writer and editor. She has written about the intersection of personal finance and health and has worked with nonprofits to develop personal finance programming for underserved populations.

Edited by:

Kristen Gerencher, MSOT

Kristen Gerencher is an award-winning writer who has reported on healthcare, medicine, and insurance for a variety of national publications. Before contributing to GoodRx, she was a healthcare and personal finance reporter for MarketWatch.

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