This seems an obvious question, but, as an article in today’s New York Times discusses, medical bills are a primary reason that many Americans file for bankruptcy. It is certainly the case among most, if not all, of my clients in the Detroit, Michigan area, that medical bills comprise a huge portion of the debt that I see. Amongst those that I meet who are roughly age 35 or under, nearly all are seeking bankruptcy as a solution entirely due to huge medical bills. Younger people in this country, as a statistical group, are significantly underinsured or uninsured entirely, and one bad medical emergency can cripple them financially for years to come, even, at times, dwarfing the outrageous obligations that today’s student loan burdens are imposing on new graduates.
Whether these medical bills can be discharged through bankruptcy is, therefore, a question worth answering outright—because so many of my clients do ask it. The answer is slightly different depending upon whether you’re talking about a Chapter 7 or a Chapter 13 bankruptcy, but, in both cases, the answer should give those struggling with impossible medical debt some basis for optimism.
In a Chapter 7 bankruptcy, the answer is an unqualified “YES!” In a Chapter 7, medical bills are treated the same as credit-card and other forms of unsecured debt: they are completely discharged. The only complication arises from debtors themselves, many of whom do have a positive and long-term relationship with their doctors and a strong desire to maintain that relationship. While many Americans have not had consistently high-quality or considerate medical care, others do want to keep using a doctor or other medical professional that they have come to know and trust over many years. They don’t want to “stiff” these doctors.
This is a very common feeling … It is admirable and understandable. But anyone shouldering an amount of medical debt that is so high that it is causing them to consider bankruptcy in the first place is between a rock and a hard place: the doctor did not, in turn, feel sentimental enough about the relationship to charge less in the first place, after all. They may be willing to work with longtime patients in offering payment plans and other options, but, in my experience, most will otherwise have no reservation about referring debtors to aggressive collection agencies to collect the amount owed. Medical collection agencies are among the most obnoxious that I have encountered in my practice, and, in my opinion, no one should feel badly about using the legal option of bankruptcy to protect themselves and their families.
In a Chapter 13 bankruptcy, the answer is slightly more complicated. Chapter 13 is a reorganization process through which debtors and their attorneys pay off debt through a 3-5 year payment plan. Debts are paid according to a certain priority established by the Federal Bankruptcy Code. As in a Chapter 7 bankruptcy, medical bills are classifed as unsecured debt, and unsecured debt is paid lastly in a Chapter 13 plan, after “secured” debt like home mortgages and “priority” debt like federal and state taxes and child-support. There are many requirements for the approval of these payment plans, but, generally, at the end of the 3-5 year period, providing that enough of the unsecured debt has been paid by the plan, the remaining unsecured debt is discharged as in a Chapter 7 liquidation. Therefore, the discharge of medical debt in a Chapter 13 is not as broadly sweeping as in a Chapter 7. Depending on how much credit-card and other unsecured debt a person has, some percentage of the medical debt will have to paid off through the Chapter 13 plan.
Medical debt is out of control in this country. Anyone receiving a bill from their local hospital for something as simple as an MRI test is well aware of this. More complicated procedures can derail a person’s financial planning for years to come. However, bankruptcy, whichever form is most appropriate for each individual, does provide a solution. It is not a solution that always feels right, as doctors are people with whom we all would like to develop a positive relationship. But, after the service has been rendered and the bills mailed, no one should feel badly about choosing to not live as a slave to a type of debt that no one else in our governmental system is working very hard to lower for you, regardless of what the headlines are saying about the insurance “reform” bill working its way through the Senate as I write.
If you have questions about medical bills and bankruptcy, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation.
