How Medical Bills Are Treated in Chapter 13 Bankruptcy

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High medical debt is cited by many as the primary reason for filing for Chapter 13 bankruptcy. Although you must repay some of your medical debts in Chapter 13 bankruptcy, you do this through the protection of your Chapter 13 repayment plan. Most people with large medical debts who file for Chapter 13 bankruptcy end up paying only a portion of their medical debts through their repayment plan; the rest are discharged at the end of the plan period.

Medical Debt a Leading Factor in Bankruptcy Filings

According to the American Journal of Medicine, in 2007 62% of people filing for bankruptcy cited medical debt or a loss of income due to illness as a leading reason for their decision to file for bankruptcy. Since that time, the trend has continued; a large percentage of bankruptcy filers turn to bankruptcy because of high medical debts. 

Medical Debts Are Unsecured Debt

Many people owe money directly to doctors, laboratories, hospitals, out-patient surgery centers, dentists, and other medical providers. Other people use credit cards to pay their medical care providers, and in that way rack up huge amounts of credit card debt. 

Debts owed to medical providers and credit card debt are classified as unsecured debt. This means that the debtor has not pledged a piece of property (such as a house or car) as collateral for payment of the debt. (To learn more about the difference between secured and unsecured debt, see Secured vs. Unsecured Debt.)

Unsecured Debt in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you get to keep your property. In return you repay your creditors through a Chapter 13 repayment plan which lasts three or five years. How much of your debts get repaid depends on the type of debt. You must continue to make your monthly payments on secured debts (like your mortgage or car loan) if you wish to keep the property. Arrearages on secured debts must be paid in full through your repayment plan and you must pay other types of debts in full (such as child support).

Unsecured debts, however, are treated differently. You must pay a certain percentage of your unsecured debts through your repayment plan. The amount depends on various factors including your disposable income and how much your unsecured creditors would have received had you filed for Chapter 7 bankruptcy. At the end of your repayment period, the remaining balance on your secured debt is discharged (wiped out). (To learn more about the repayment plan, including how much of your unsecured debt you must repay, see The Chapter 13 Bankruptcy Repayment Plan.)

Because medical debt and credit card debt is unsecured debt, most people will pay only a portion of that debt through the Chapter 13 plan. In fact, many people end up paying only pennies on the dollar. If you make all plan payments, the rest of your medical debt is wiped out at the end of the repyament plan period. 

Chapter 7 Bankruptcy and Medical Debt

You can also wipe out medical and credit card debt in Chapter 7 bankruptcy. However, not everyone is eligible to file for Chapter 7 bankruptcy. To learn more about how medical debts are treated in Chapter 7 bankruptcy, and who can file for Chapter 7, see Facts About Chapter 7 Bankruptcy and Medical Debt.

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