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Does bankruptcy eliminate medical debt?

On Behalf of | Nov 10, 2023 | Bankruptcy, Personal Injury

Medical debt can be a significant financial burden, especially when unexpected health issues arise. It is not uncommon for individuals to accumulate substantial medical bills due to surgeries, hospital stays or chronic health conditions.

When facing overwhelming medical debt, individuals may wonder whether bankruptcy can be a viable solution to eliminate this financial burden.

Chapter 7 bankruptcy

Chapter 7 bankruptcy is a potential avenue to eliminate various forms of debt, including medical debt. Under Chapter 7, eligible debts undergo discharge, relieving the debtor of the legal obligation to repay them. This can offer much-needed relief to those grappling with substantial medical debt.

To have medical debt discharged in Chapter 7 bankruptcy, an individual must meet specific criteria. This includes passing the means test, which evaluates someone’s ability to repay their debts. Medical debt is generally eligible for discharge under Chapter 7. However, it is important to note that not all debts are dischargeable in bankruptcy.

Chapter 13 bankruptcy

In contrast, Chapter 13 bankruptcy does not eliminate medical debt but provides a structured approach to make it more manageable. Individuals who file for Chapter 13 work with the court to create a three-to-five-year repayment plan based on their income and assets. Medical debt becomes part of this plan, and individuals gradually repay a portion of their medical bills over time.

The repayment plan considers the individual’s ability to pay and allows for spreading payments over several years. This can be a suitable option for those with a stable income who wish to address their medical debt without sacrificing valuable assets.

According to Forbes, one in five households struggles to dig itself out of medical debt. Bankruptcy can indeed provide a potential path to relief from medical debt, depending on the type of bankruptcy chosen and the specific circumstances surrounding the debt.