Medical Bankruptcy: Fact or Fiction?

You’ve probably heard someone use the term “medical bankruptcy.” This is a word commonly used by people who are experiencing a medical financial crisis or who know someone facing serious medical debt. Although medical bankruptcy is not a legal term, it is a useful term to describe a financial remedy for a person who may have reached the end of their rope due to medical debt.

Medical bankruptcy can be a misleading term because there is no legal remedy available exclusively for medical debt. In general, bankruptcy is the dissolution or reorganization of some or all of an individual’s debt. When you file for bankruptcy of any kind, you must include all of your debts. This would apply to home mortgage loans, auto loans, credit cards, and medical debt. There are several types of bankruptcies, but most people who file for medical debt will generally file for Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy may allow a person to eliminate their debt, while a Chapter 13 bankruptcy can allow a person to reorganize their debt into a 3-5 year plan, while at the same time reducing the principal on their debt.

The idea that a medical bankruptcy exists as a legal remedy may have developed because the court handles medical debt differently than it would other types of debt. Not all debts will receive the same treatment in court. A bankruptcy court will generally divide an individual’s debt into two classes: Secured Debt or Unsecured Debt. Secured debt is the type of debt that is usually tied to assets like a car loan or home mortgage. Unsecured debt is generally not tied to assets, but can often be eliminated or greatly reduced through bankruptcy. It is important to realize that medical debt is generally classified as unsecured debt.

While the term “medical bankruptcy” is not a legal term, it is a useful way for a person to describe how their finances fell into disarray. An experienced bankruptcy attorney will immediately understand what a client needs when they inquire about medical bankruptcy. A bankruptcy attorney can tell you how a bankruptcy could be a solution to your financial hardship caused by medical debt, and even help you decide whether Chapter 7 or Chapter 13 is more appropriate for your situation. Once an individual has decided on the best course of action, the attorney will guide them smoothly through the legal process of filing and obtaining a bankruptcy.

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