One of the three major reasons people file for bankruptcy is unpaid medical bills, the other two being job loss and divorce.
Until recently, it was a common practice for hospitals and other health care providers to accept partial, and sometimes very small, payments to pay off medical bills.
A recent trend, particularly for hospitals is to turn over unpaid medical bills to a collection agency shortly after there is a coverage determination and a balance is due.
Whether uninsured or underinsured, if you have unpaid medical bill you may want to consider bankruptcy as an option.
Medical bills are an unsecured debt and can be discharged in a Chapter 7 bankruptcy, just like a credit card bill.
However, many people think that they can file bankruptcy for their medical bills only. This is not true.
My friends and co-contributors to the Bankruptcy Law Network, Karen Oakes, and Brett Weiss have written very through articles entitled: “Bankruptcy Basics: What Is A Medical Bankruptcy” and “Can I File Bankruptcy Just On Medical Bills?” where they point out that medical bankruptcy do not exist and why.
To summarize their articles, the general reason that you can’t just get rid of your medical debts is because the Bankruptcy Code requires that all of your unsecured creditors be treated equally and have the same opportunity to share in the distribution of any nonexempt assets that you may have.
The reality is that:
- Few, if any, individuals that file for Chapter 7 bankruptcy will have assets that are non-exempt, so unsecured creditors won’t see any money anyway, medical or otherwise, won’t see any money anyway.
- A Chapter 7 bankruptcy can only be filed once in an eight year period, so it is very short sighted to not discharge all of your debts when you file.
- Even if you don’t list all of your unsecured creditors in your bankruptcy filing, the creditors will learn of the filing anyway and cancel your credit.
Lastly, I do not recommend the filing of a bankruptcy if you, a spouse, or a family member are scheduled for a medical procedure or are pregnant.
It is usually a good idea to wait until after the medical situation is clear before a bankruptcy. That way, if a serious complication results in a large medical bill you still have the opportunity to discharge the debt.