Bankruptcy is a means of obtaining relief from overwhelming debt, including medical expenses that people may struggle to pay. However, whether bankruptcy can discharge medical debt depends on the type of bankruptcy filed and the specific circumstances of the debt.
Understanding the implications of bankruptcy on medical debt is helpful for anyone facing financial challenges due to medical expenses.
Chapter 7 bankruptcy
A Chapter 7 bankruptcy is a liquidation bankruptcy. As such, it can discharge medical debt and other unsecured debts, such as credit card bills and personal loans. In Chapter 7 bankruptcy, eligible medical debts undergo discharge, giving people a fresh financial start and relief from financial burdens. However, certain types of medical debt, such as debts incurred through fraudulent means or debts arising from willful and malicious injury, may not be dischargeable in Chapter 7 bankruptcy.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy is a reorganization bankruptcy. As such, it does not automatically discharge medical debt like Chapter 7 bankruptcy. Instead, individuals filing for Chapter 13 bankruptcy propose a repayment plan to repay some or all of their debts over a three-to-five-year period. While medical debt may be part of the repayment plan, people must show the ability to repay a portion of their medical debts through the plan.
According to Forbes, about one in five American households say they cannot cover the costs of necessary medical care. Knowing how different bankruptcy types affect medical bills helps people facing mounting debt determine the most effective way to move forward.
