Medical Debt in Memphis

Medical Debt in Bankruptcy: How It Works and What Relief Is Available

Medical debt is a leading cause of personal bankruptcy in the United States, affecting millions each year—even those with health insurance. While there is no specific “medical bankruptcy” under U.S. law, medical debt is treated as unsecured debt and can be discharged through standard bankruptcy proceedings, primarily under Chapter 7 or Chapter 13 of the Bankruptcy Code.

What Is Medical Bankruptcy?

The term medical bankruptcy refers to bankruptcy filings driven primarily by overwhelming medical bills or illness-related loss of income. Studies estimate that medical issues are a primary or contributing cause in 40% to over 66% of personal bankruptcy filings in the U.S., making it the single largest driver of bankruptcy for American families.

How Medical Debt Is Treated in Bankruptcy

Medical debt is classified as unsecured debt, meaning it is not tied to any collateral such as a home or car. This distinction is important because unsecured debts are generally dischargeable in bankruptcy.

Chapter 13 Bankruptcy

• Repayment Plan: Chapter 13 sets up a three- to five-year repayment plan, allowing you to pay back a portion of your debts—including medical debt—based on your disposable income.
• Partial Repayment: Most people pay only a fraction of their medical debt through the plan; the remaining balance is discharged at the end of the repayment period.
• Asset Retention: Chapter 13 is often chosen by those who do not qualify for Chapter 7 or who have significant assets they wish to protect, such as a home or car.
• Additional Protections: This chapter can also help you catch up on secured debts (like a mortgage) and prevent foreclosure or repossession.

Chapter 7 Bankruptcy

• Complete Discharge: Chapter 7, often called “liquidation bankruptcy,” allows for the discharge of all eligible unsecured debts, including medical bills. There is no cap on the amount of medical debt that can be discharged.
• Means Test Required: To qualify, you must pass a means test based on your income and expenses. If your income is below your state’s median, you are more likely to qualify.
• Asset Protection: While some non-exempt property may be liquidated, most filers keep essential assets due to state or federal exemptions.
• Timeline: The process typically takes four to six months, after which remaining unsecured debt—including medical bills—is discharged, and creditors can no longer pursue collection.

Key Protections and Limitations

• Automatic Stay: Filing for bankruptcy triggers an automatic stay, immediately halting all collection efforts, lawsuits, and wage garnishments related to medical debt.
• Excluded Debts: Bankruptcy does not erase all debts. Child support, recent tax debts, and most student loans are generally not dischargeable.
• Post-Filing Debt: Medical bills incurred after the bankruptcy filing date are not included and remain your responsibility.
• Secured Medical Equipment: If medical equipment was financed and secured by a lien, special rules may apply regarding its retention or return.

Prevalence and Impact

• Medical expenses are the leading cause of bankruptcy, cited in 40% to 66% of filings.
• Nearly 1 in 5 adults with healthcare debt have declared bankruptcy or lost their home because of it.
• Even with insurance, high deductibles and uncovered expenses drive many into unmanageable debt.

Conclusion: Should You File?

Bankruptcy can provide powerful relief from overwhelming medical debt, stop collection actions, and offer a path to financial recovery. However, it has significant long-term credit and financial implications. Consulting with an experienced bankruptcy attorney is strongly recommended to evaluate your options and ensure the best possible outcome.

Arthur Ray Law Offices in Memphis can help you with filing bankruptcy on medical debt. Arthur Ray is an affordable bankruptcy attorney that can help you with additional questions on can file bankruptcy for health issues bill.

Do not act on anything you read on this site without hiring an attorney. This is why we offer, for free, to prepare a bankruptcy petition for you to see what works best in your personal financial situation. We provide representation for individuals who live in Lauderdale, Tipton, Fayette and Shelby County, Tennessee, who qualify to file bankruptcy in the Bankruptcy Court for the Western District of Tennessee located in Memphis, Tennessee.

^*For those who qualify under federal law.