What is medical bankruptcy?

On Behalf of | Jul 5, 2024 | Bankruptcy

Discussions about bankruptcy and popular media often reflect outdated stereotypes. For example, people often talk about credit card use and frivolous spending as leading causes of bankruptcy. However, mainstream media outlets have started to notice a trend in who seeks out bankruptcy protection.

In recent months, there has been a noticeable increase in news organizations discussing medical bankruptcy. As healthcare costs have increased, so have the number of people struggling to pay their medical debts. The idea of filing a medical bankruptcy may appeal to those who owe money for treatments. Those people may be in for a shock when they start learning about bankruptcy.

There is no such thing as medical bankruptcy

Despite what headlines in major news outlets declare, medical bankruptcy is not a distinct type of bankruptcy. There is no current form of bankruptcy that only applies to medical debts. Instead, consumers seeking relief from from the impact of medical debts have to choose what type of bankruptcy they file.

Most people choose between Chapter 13 and Chapter 7 bankruptcy. The amount of debt they have, the value of their personal property and their income can influence whether someone qualifies for Chapter 7 bankruptcy or files a Chapter 13 case. Either type of bankruptcy can potentially help someone address their medical debts.

How bankruptcy helps with medical debt

Medical debts are typically unsecured financial obligations. Unless a hospital or other medical creditor has already gone to court, there is no collateral property securing medical debt. Some hospitals and healthcare providers file lawsuits and demand liens against future personal injury payments made to the patient or even liens against their primary residence.

A personal bankruptcy filing could prevent a medical creditor from pursuing a lawsuit that could worsen someone’s financial circumstances. Those who qualify for a Chapter 7 bankruptcy can discharge most, if not all, of their medical debts through that process.

Chapter 13 bankruptcy is a bit different. The filer has to negotiate a payment arrangement with creditors. They may have to make between three and five years of structured monthly payments through the courts. However, any remaining balance on their debts is eligible for discharge if they complete the repayment plan.

Either form of bankruptcy can offer someone relief from collection efforts and the financial strain caused by medical debt. Even if there is no special form of medical bankruptcy available, a personal bankruptcy filing can benefit those with medical debt. Learning more about the different types of bankruptcy can help people make use of the legal systems in place for their financial protection.