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Can Bankruptcy Help With Medical Bills?

January 7, 2020 in Medical Debt   4 min read

When people hear the term bankruptcy they often imagine credit card debt fueled by reckless spending. But that is a misconception. In fact, the majority of bankruptcies are caused by medical debt. Credit cards aren't even in second place, they're in third behind unaffordable mortgages or foreclosure. And having medical insurance is no guarantee against filing for bankruptcy because of medical bills. Some 20% of people under the age of 65 report struggling to pay medical bills even though they had medical insurance.

An illness is often a double whammy when it comes to your finances. Not only are the medical bills piling up but you may not be able to work for some amount of time. Maybe even a triple whammy if your spouse or partner had to take time off from their job to be with and look after you. If you don't have paid time off (and neither does your spouse) or short-term disability, the fact that there is no money coming in can make an already bad situation even worse.

One of the biggest bankruptcy inquires is “Can bankruptcy help with medical bills?” We’ll answer that question for you.

Not All Debt

One of the most important things to understand about bankruptcy is that not all debts are eligible to be forgiven. Student loan debt, for example, is almost never discharged in bankruptcy. Other debts not discharged in bankruptcy include child support, alimony, fines and penalties owed as a result of breaking the law, certain tax debts, and debts from causing death or injury as a result of a drunk driving incident.

Medical Debt

Medical debt is discharged in bankruptcy. If you paid the medical debt with credit cards, that credit card debt is also forgiven (credit card debt is forgiven no matter what the cards were used to pay for). And there is no limit to the amount of medical debt (or any other kind of debt) that can be discharged under bankruptcy.

Should You File Bankruptcy Based on Medical Debts?

People often struggle with the decision to file for bankruptcy. If you buckle down, cut your spending, bring in some extra money from a side hustle, could you tackle the debt on your own without having to go through the bankruptcy process and take the hit bankruptcy means to your credit score?

Maybe. Are you a few thousand dollars in credit card debt? You could probably fight your way out of it with strict budgeting. But consider that the average cost of a single day in the hospital in the United States is a whopping $10,400 and the average length of a hospital stay is 4.5 days, you’re looking at a bill of $46,800. And that figure doesn’t include income lost due to the inability to work. The median income for an American working 40 hours per week is $47,060. 

You do the math. The average cost of a hospital stay is just slightly less than the median salary. There is no saving or side-hustling your way out of that kind of debt. 

Medical debt is not a “pull yourself up by the bootstraps” situation. We can understand having some feelings of shame around filing for bankruptcy if you simply spent money on things you couldn’t afford and didn’t need but there should be no such feeling around a crippling amount of medical debt. No matter what you do, short of winning the lottery, you are very unlikely to ever pay off tens or hundreds of thousands or millions (not unheard of) of dollars in medical debt that you incurred through no fault of your own. No one chooses to have a serious injury or illness. 

When you have so much medical debt that you can never pay it off, filing for bankruptcy is not only a good decision for you and your family, it’s the right decision. Your family needs a roof over their heads, food to eat, and all of the other necessities of life. And you would like to be able to save for your children’s college education and your own retirement. You should not let medical debt take those things away.

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