Medical Bills and Bankruptcy

• Medical bills often fall under the heading of "unexpected expenses," and for a serious illness or injury the charges can quickly accumulate into the tens of thousands of dollars, even with health insurance coverage. Typically, medical bills are classified as nonpriority unsecured debt in a bankruptcy. If you are in financial distress due to medical expenses, you will be glad to know that unsecured debts are usually the first creditor claims to be eliminated. So, you can claim medical bills on bankruptcy filings, and in most cases the debt will be completely discharged.
  
  

Debt Categories

• As part of filing for bankruptcy protection, you must provide a list of all your monthly debt obligations, including medical bills, credit card debts, mortgage, car loans, tax debts, support payments and student loans. Your debts can be separated into three categories: secured debts, priority unsecured debts and unsecured debts (non-priority). Most unsecured debts are dischargeable in bankruptcy, including medical bills. If, however, one of your medical services providers has already obtained a court-ordered money judgment against you, it is considered a secured debt and must be repaid.
  
  

Chapter 7

• Filing for bankruptcy protection due to insurmountable medical expenses is often called medical bankruptcy. You have two options: Chapter 7 or Chapter 13 bankruptcy. If you can meet the income requirements and qualify to file for Chapter 7 bankruptcy protection, all non-priority unsecured debts (medical bills, credit card debt) may be discharged in as little as 60 days. An automatic stay also goes into effect, directing your creditors to stop all collection activities. The disadvantage to Chapter 7 is that you may lose some of your valuable assets to pay off secured creditors. Your credit score takes a substantial hit, and the bankruptcy remains on your credit report for up to 10 years. A bankruptcy lawyer may be able to help you keep larger assets like your house and car.
  
  

Chapter 13

• With a Chapter 13 bankruptcy, you can still claim medical bills, but it is likely you will be paying at least a portion of them with your reorganization and repayment plan. Generally, with Chapter 13 your debts will be lumped together into one manageable monthly payment, to be repaid over a three- to five-year period. Whatever debt is left at the end of the payment plan typically gets discharged. Your monthly payment could amount to as little as $150 per month. Chapter 13 bankruptcy remains on your credit report for up to seven years. A bankruptcy attorney may be able to have all your unsecured debts discharged in Chapter 13.