A large percentage of Chapter 7 bankruptcy filers cite medical debts as the primary reason for their need to file for bankruptcy relief. In Chapter 7 bankruptcy, medical debts are usually discharged (wiped out).
However, not all bankruptcy filers qualify for Chapter 7 bankruptcy. If you don't meet certain eligibilty criteria, you may have to file under Chapter 13.
The August 2009 issue of The American Journal of Medicine published a study that examined the main cause of bankruptcies in 2007. The study found that 62% of the people responding to their survey attributed their bankruptcy primarily to medical debt or to having lost their income due to an illness.
Not surprisingly, this trend -- medical debt being a leading cause of bankruptcy -- has continued in recent years.
Sometimes this debt is owed to a doctor, hospital, or other medical care provider. Sometimes the filer has racked up credit card debt in order to pay medical bills.
In Chapter 7 bankruptcy, you are able to wipe out most or all of your debts. In return, you must turn over nonexempt property to the bankruptcy trustee -- the trustee will sell the property and use the proceeds to pay your unsecured creditors.
Not all debts are discharged (wiped out) at the conclusion of a Chapter 7 bankruptcy. However, unsecured debt, such as medical debt and credit card debt, is discharged.
Unfortunately, not all debtors are eligible to file for Chapter 7 bankruptcy. If your income and debts are such that you could afford to pay off a certain amount of your debts through a Chapter 13 repayment plan, you won't be eligible for Chapter 7 bankruptcy. In order to determine your elibility, you must take the "means test." (To learn more about the means test, see The Bankruptcy Means Test.)
To learn what happens to medical debts in Chapter 13 bankruptcy, see How Medical Bills Are Treated in Chapter 13 Bankruptcy)