Medical Debt & Bankruptcy

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The cost of healthcare has been soaring for decades, especially for individuals who: 1) don’t qualify for Medicare of Medicaid, 2) are independent contractors, or 3) who earn some money, but not enough to afford quality health insurance.

If you’ve accrued large medical bills on behalf of yourself, your spouse, or your children, the medical debt may be one of the reasons you’re seeking bankruptcy relief. After all, it’s not uncommon for medical debt to be in the tens, if not hundreds of thousands of dollars – and usually everyday citizens don’t have that kind of money laying around. So, the question is, can medical debt be included in Chapter 7 or Chapter 13 bankruptcy?

How Medical Debt is Treated in Bankruptcy Cases

When it comes to bankruptcy, not all debts are equal. Certain debts are called “priority debts,” such as spousal support, child support, and recent taxes. Priority debts cannot be discharged in bankruptcy. Fortunately, medical debt is not a priority debt and it can be included in Chapter 7 and 13 bankruptcy.

Unlike a mortgage or an auto loan, medical debt is not attached to collateral. So, it falls into the same category as other unsecured debts, such as credit card debt and personal loans. If you file Chapter 7 bankruptcy for example, the medical debt will be wiped out completely.

On the other hand, if you file a Chapter 13 bankruptcy, which involves a 3 to 5-year repayment plan where you pay off all or a portion of your debts, you may end up paying off some, if not all of the medical debt.

If you enter into a Chapter 13 repayment plan, how much of the medical debt you pay off depends on your income, debts, and expenses. This could mean you pay pennies on the dollar. However, if your debt exceeds the Chapter 13 debt limit, you may not qualify and a Chapter 7 may be the only option.

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