Healthcare costs a lot in America. A 2021 study found that roughly 20% of American households could not afford medical care. In fact, another report found that debt collectors call about medical debts more than any other kind of debt.
A study from over twenty years ago found that nearly 2 in 5 bankruptcies were done because of medical debts. In recent years, that number has been almost 4 in 5.
Every year, more than 500,000 people file for bankruptcy in order to protect themselves against medical bills.
What is Medical Bankruptcy?
There’s no such thing as a “medical bankruptcy”. Even though you’re filing a bankruptcy case to get rid of overwhelming medical debt, you won’t be able to limit the case to just outstanding medical bills.
The bankruptcy laws are designed to be as fair as possible to the debtor (the person who files the bankruptcy case) and to the creditors.
Medical debt is considered the same as credit card debt, old utility bills, personal loans, and money you’ve borrowed from friends and family.
These are all similar enough that the bankruptcy code treats them the same way.
Many people owe money directly to doctors, laboratories, hospitals, out-patient surgery centers, dentists, and other medical providers.
Other people use credit cards to pay their medical care providers, and in that way rack up huge amounts of credit card debt.
How Does Bankruptcy Help Eliminate My Medical Debt?
There isn’t really a type of bankruptcy that is just for medical bills. In fact, there isn’t really any kind of special process that lets you choose to get rid of one debt and not others. Bankruptcy doesn’t work like that.
Debts come in a couple of vital categories. There are secured debts and unsecured debts. A secured debt is one wherein there is some collateral, such as a car or a property. In contrast, unsecured debt has no collateral.
Debts are also divided between priority and nonpriority. There are a number of unsecured debts, such as child support or student loans, that aren’t discharged the way a typical unsecured debt is.
This is because these are priority debts, and so they function a little bit differently.
Medical bills are almost always nonpriority unsecured debts. This means that they are precisely the kind of debt that could be discharged through bankruptcy.
While there are a number of different types of bankruptcy, an individual looking to clear their medical bill debt would most likely file a Chapter 7 and Chapter 13 bankruptcy.
Debts owed to medical providers and credit card debt are classified as unsecured debt. This means that the debtor has not pledged a piece of property (such as a house or car) as collateral for payment of the debt.
Are There Other Ways to Eliminate Medical Debt?
While bankruptcy is one way to deal with debt from medical bills, there are several others that are worth considering as well.
Some medical providers will be open to negotiation. This could mean they have a system in place to help with debt management, or they may be open to creating a payment plan.
Most people have multiple kinds of debt, so one way to eliminate medical bill debt could be to consolidate it together with other debts.
Rather than making several different payments against debts, you are able to make a single payment towards multiple.
Modern technology could make it easier to raise money for medical bills through websites like GoFundMe.
However, while there are always news stories about wildly successful crowdfunding campaigns, the reality is that most crowdfunding campaigns don’t meet their goals.
How Do I Know if Bankruptcy is the Right Choice?
Deciding to file for bankruptcy is a big choice. The best way to be sure that you are making the right decision is to first speak to a bankruptcy attorney. An experienced bankruptcy attorney will be able to advise you on the best course of action, what to expect from the process, what could potentially cause issues, and anything else you need to know before making your decision.