Medical debt is one of the leading causes of financial distress in the United States. For many individuals and families, unexpected medical expenses can quickly spiral out of control, leaving them with overwhelming debt that feels impossible to repay.
If you’re struggling to keep up with medical bills and other financial obligations, medical bankruptcy may be a solution to help you regain financial stability.
At Berken Cloyes, PC, we understand the stress and uncertainty that come with unmanageable medical debt. Here, we’ll explain what medical bankruptcy is, how it works, and whether it might be the right option for you.
What is Medical Bankruptcy?
Medical bankruptcy is not a specific legal term but rather a common phrase used to describe filing for bankruptcy due to medical debt. Individuals facing insurmountable medical bills may seek relief through Chapter 7 or Chapter 13 bankruptcy, both of which can help eliminate or restructure their debt, including medical expenses.
Unlike other types of debt (such as mortgage or credit card debt), medical debt is typically unsecured, meaning it is not tied to any collateral like a home or car. This makes it easier to discharge through bankruptcy.
How Medical Bankruptcy Works
If you are considering filing for bankruptcy due to medical debt, you generally have two options:
1. Chapter 7 Bankruptcy – Discharging Medical Debt
Chapter 7 bankruptcy is the most common type of bankruptcy for individuals struggling with overwhelming medical debt. It allows eligible filers to eliminate unsecured debts, including:
- Medical bills
- Credit card debt
- Personal loans
To qualify for Chapter 7, you must pass the means test, which evaluates your income level compared to the median income in your state. If you qualify, most (if not all) of your medical debt can be completely discharged in a matter of months.
Pros of Chapter 7 for Medical Bankruptcy:
- Eliminates medical debt quickly
- No repayment required
- Stops creditor harassment and lawsuits
Cons:
- May require the liquidation of non-exempt assets (though most people keep their essential belongings)
- Not available to those who earn too much under the means test
2. Chapter 13 Bankruptcy – Restructuring Medical Debt
For those who do not qualify for Chapter 7 or who have significant assets they want to protect, Chapter 13 bankruptcy is another option. Instead of discharging debt immediately, Chapter 13 reorganizes debts into a manageable repayment plan over 3 to 5 years.
Under Chapter 13, medical debt is combined with other debts into a single monthly payment, which is based on your income and ability to pay. At the end of the repayment period, any remaining unsecured debts may be discharged.
Pros of Chapter 13 for Medical Bankruptcy:
- Allows you to keep your home, car, and other valuable assets
- Stops lawsuits, wage garnishments, and collections
- Provides structured debt repayment with reduced interest rates
Cons:
- Requires a repayment plan over several years
- Does not immediately eliminate debt like Chapter 7
When Should You Consider Filing for Medical Bankruptcy?
Medical bankruptcy may be the right choice if:
- Your medical debt is unmanageable, and you are unable to make payments.
- You have exhausted other options, such as negotiating medical bills or setting up a payment plan.
- Medical debt is affecting your ability to pay for necessities like rent, food, and utilities.
- Creditors are harassing you or threatening legal action.
- Your wages are being garnished or you are facing lawsuits over unpaid bills.
If any of these apply to your situation, consulting a bankruptcy attorney can help you determine the best course of action.
What Happens to Your Credit After Medical Bankruptcy?
One common concern about bankruptcy is its impact on your credit score. Filing for bankruptcy does lower your credit score, and a Chapter 7 filing remains on your credit report for 10 years, while Chapter 13 stays for 7 years. However, if you are already struggling with unpaid medical debt, missed payments, and collections, your credit score may already be suffering.
The good news is that many people see improvements in their credit within a year or two after bankruptcy, as it gives them a fresh start and eliminates unmanageable debt. Rebuilding credit through responsible financial habits, such as paying bills on time and using credit cautiously, can help restore financial stability over time.
Alternatives to Medical Bankruptcy
Before deciding on bankruptcy, consider exploring alternative options, such as:
- Negotiating Medical Bills: Many hospitals and healthcare providers offer discounts or payment plans if you explain your financial hardship.
- Medical Debt Consolidation: Taking out a low-interest personal loan to pay off multiple medical bills may be an option if you have good credit.
- Debt Settlement Programs: Some companies specialize in negotiating reduced payments with creditors, though they often charge fees.
- Charity or Financial Assistance Programs: Certain nonprofits and medical providers offer assistance for individuals struggling with large medical bills.
If these alternatives are not enough, bankruptcy may be the best way to reset your financial situation and move forward.
Get Legal Guidance on Medical Bankruptcy
If you’re struggling with overwhelming medical debt and don’t know where to turn, Berken Cloyes, PC is here to help. Our experienced bankruptcy attorneys can review your financial situation, explain your options, and guide you toward the best debt relief solution for your needs.
Filing for bankruptcy is a big decision, but it can provide the financial fresh start you need. We are dedicated to helping individuals in Colorado regain control of their finances and rebuild their lives.
Contact Berken Cloyes, PC today at (303) 623-4357 for a free consultation. Let us help you take the next step toward financial freedom.
