Medical debt is treated much like other unsecured debt in bankruptcy, but there are a few nuances worth understanding.
Medical creditors include hospitals, clinics, doctors, or collection agencies that you owe for healthcare services. In bankruptcy, they are typically classified as non-priority unsecured creditors, meaning they do not have collateral (as a car loan does) and are not given special priority (like child support or certain taxes).
In a Chapter 7 (liquidation) bankruptcy, most medical debt is discharged, or wiped out. You must ensure all of your medical creditors are listed accurately. During the filing process, this means you will have some homework to do. You will need to research which clinics, hospitals, and other providers you visited and gather as much information as possible to provide to your legal team before filing.
Chapter 13 bankruptcy involves a three- to five-year repayment plan. In this type of filing, medical creditors are grouped with other unsecured creditors, like credit cards. They often receive only a fraction of what is owe, sometimes very little, and any remaining balance at the end is typically discharged.
Once you file, an automatic stay goes into effect. This protects you from creditors during the bankruptcy case. Medical creditors must stop collection efforts immediately—no more calls, lawsuits, wage garnishments, or billing statements.
However, to ensure a smooth discharge, you must list every medical creditor (and every creditor in general) accurately. Even if the bill is in collections or has been sold to a collection agency, you will need to list both the original creditor and the collection agency. This ensures the debt is properly addressed in the filing, and the court will notify whoever currently owns the debt.
Missing a creditor can complicate the discharge process, although in many no-asset Chapter 7 cases, unlisted unsecured debts may still be discharged.
In most cases, bankruptcy is very effective at eliminating medical debt, especially under Chapter 7. The key is full disclosure and understanding that medical creditors are treated as general unsecured creditors.
If you are ready to explore your options, reach out to Minnesota’s kindest and most helpful bankruptcy law firm at www.lifebacklaw.com. Schedule your free consultation today and start the journey to financial freedom. We even offer a credit repair program to get you back on track! You are on the right path to protecting you, and your family.