Rising medical costs, lack of adequate insurance, unexpected illness and disability have caused financial hardship for many Americans. Each year, more than a million people file bankruptcy petitions and national statistics show that half of them have experienced a serious health problem. According to a 2007 national study on medical bankruptcy in the United States, more than 60% of bankruptcy filings are related to health care costs.
So what happens to medical debt when one files a bankruptcy petition? It is treated the same way as other "unsecured" debt, such as credit card bills and personal loans, meaning that it is not backed up by any specific tangible property and creditors cannot take any specific property from you if you are not able to pay. If a person files Chapter 7 where unsecured debts are completely wiped out, this means that the medical bills are erased as well. If a person files Chapter 13 and creditors are repaid a certain percentage of the debt, medical creditors are partially repaid according to the same plan, and the rest of the debt is erased.
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The caveat is that only pre-filing debt is eliminated. Any debt incurred after petition is filed is not dischargeable.
Another caveat is that if medical debt is erased through bankruptcy, potentially an affected health care provider can interrupt or refuse future services. Bigger hospitals and institutions are less affected and less likely to interrupt services. Smaller providers - for example, a dentist with a modest practice - are more affected and more risk-averse.
To minimize effects of possible interruption of services, it is a good idea not to file the bankruptcy petition in the middle of treatment. You may also approach your health care provider and see if there is a way to minimize costs or develop a workable plan to pay for medications and treatment. If the provider is someone you have known for a long time and can trust and would like to maintain a relationship with in the future, often it helps to be upfront about the difficult financial situation you are in, including the possibility that you will be filing bankruptcy. The doctor or dentist will probably be more understanding and more willing to work with you if he or she hears about your hardship directly from you, as opposed to a notice from the bankruptcy court.
Keep in mind that if you have to pay for ongoing treatment, medications or any other medical or dental costs, it's OK to make these payments, and it's important to show all these costs in your bankruptcy petition. Unlike some other expenses, medical expenses are not capped in the calculation of how much you are able to repay creditors. They are allowable fully, provided that you can document and explain them.
One final - last, but not the least - point about medical care. If you have any actual or potential pre-filing medical debt that you are seeking to discharge, include this information in the petition even if you are not sure of the amount, even if you are not sure how much insurance would end up covering. Otherwise, if a creditor does not receive proper and timely notice of the bankruptcy filing, you may still be on the hook for the debt.
This situation does come up with some regularity - someone has a costly procedure or surgery, does not disclose the potential debt because the bill has not come in or insurance claim has not been settled, files the bankruptcy case. And then the bill does come in - sometimes for thousands of dollars, which one may have to pay because the creditor was not given proper notice of bankruptcy.
If you have health problems and are considering filing bankruptcy, save yourself from the unnecessary additional headache and fully inform your lawyer of your situation and medical costs.
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