The short answer is “Yes.” Medical debt, or credit cards used to pay medical bills, is one of the main reasons that people file for bankruptcy. Whether any of the debt would have to be paid back depends on whether you file a Chapter 7 or Chapter 13 bankruptcy case. Medical debt is generally unsecured debt that can be fully wiped out, or discharged, in a Chapter 7. In a Chapter 13 bankruptcy case, you may have to pay back some of your medical debt, but the remainder would be wiped out.
Chapter 7 and Chapter 13 Bankruptcy
A Chapter 7 bankruptcy is often called “straight bankruptcy”. In Chapter 7, you are telling the court and your creditors that you don’t have any money to pay your debts and you don’t have any assets, property, that can be sold to pay your debts. In Chapter 7, you are simply asking that all of your debts be wiped away, or discharged. Whether you have any assets that can be sold will depend on what property you own and if it can be exempted, that is, taken away from the claims of creditors. You can file Chapter 7 if your income is low enough to pass a means test and if you have no disposable income (money left over after paying your necessary monthly expenses) that can be used to pay your creditors.
A Chapter 13 bankruptcy is often called a “reorganization”. In Chapter 13, you are telling the court and your creditors that you can afford to pay something back, but not all of what you owe. In a Chapter 13, you get to keep your property, but you enter into a repayment plan that will last 3 to 5 years. How much will get repaid to your creditors depends on the type of debt, if the debt is secured by collateral, or if it is a priority debt, such as child support and some taxes. At the end of a Chapter 13, whatever unsecured debt has not been repaid is wiped out.
Not All Debts Get Discharged in Bankruptcy
Not all debts are treated the same in bankruptcy. Debts are classified as priority, secured or unsecured in a bankruptcy case. Priority debt, such as some taxes and child support or spousal support, is usually not discharged. In a Chapter 13, priority debts generally get paid in full.
Secured debts are those where the creditor has put a lien on your property that lets the creditor take the property back if you don’t pay. Secured debts are things like car loans and mortgages. Medical debt is unsecured, unless you have been sued for the debt and a judgment lien was placed on your property.
Unsecured debts are those debts where the creditor has no collateral. Credit cards, medical bills and student loans are examples of unsecured debt. Student loans are given special treatment in bankruptcy and are not discharged. Unsecured debts are the last to get paid, get no special treatment and are wiped out by bankruptcy.
Medical Debts Are Generally Discharged In Bankruptcy
Medical debt is unsecured debt. In a Chapter 7, it will be wiped out without any payment. There is no limit on the amount of medical debt that can be wiped out. In a Chapter 13, some of your medical debts will have to be repaid, but it is usually pennies on the dollar, and any amount not repaid is wiped out at the end of the repayment plan. How much you have to repay depends on your disposable income and how much your unsecured creditors would get if you had filed a Chapter 7. A good bankruptcy attorney will be able to calculate you how much will have to repay.
Questions for Your Attorney
• Can I file a Chapter 7 bankruptcy to wipe out my medical debt?
• If I file Chapter 13, how much of my medical debt will I have to repay?
• Does filing for bankruptcy make sense in my case?