Medical Debt: What Bankruptcy Can Do About it

Medical debts are perhaps the most common reason people choose the "fresh start" option that bankruptcy gives them. Illness or injury, combined with loss of income can produce exactly kind of financial stresses that bankruptcy is designed to cure. Rather than be saddled with a lifetime of debt, bankruptcy can eliminate it, and give you a fresh start. Every state ranks differently. Find out how California ranks.
What Debt Can Be Wiped Out In Bankruptcy?
What Debts Will I Still Have To Pay After My Bankruptcy?

Last Reviewed: Mon, Oct 24, 2022

Studies show that each state differs on how well they protect their residents from the effect of medical debt. Here's how California ranks.

In the past five years, more than half of U.S. adults report they’ve gone into debt because of medical or dental bills, a Kaiser Foundation poll found.

Other findings:

  • A quarter of adults with health care debt owe more than $5,000.
  • And about 1 in 5 with any amount of debt said they don’t expect to ever pay it off.

Patient debt is piling up despite the landmark 2010 Affordable Care Act (aka Obamacare).

The law expanded insurance coverage to tens of millions of Americans. Yet it also ushered in years of robust profits for the medical industry, which has steadily raised prices over the past decade.

Hospitals recorded their most profitable year on record in 2019, notching an aggregate profit margin of 7.6%, according to the federal Medicare Payment Advisory Committee. Many hospitals thrived even through the pandemic.

But for many Americans, the law failed to live up to its promise of more affordable care. Instead, they’ve faced thousands of dollars in bills as health insurers shifted costs onto patients through higher deductibles.

Now, a highly lucrative industry is capitalizing on patients’ inability to pay. Hospitals and other medical providers are pushing millions into credit cards and other loans. These stick patients with high interest rates while generating profits for the lenders that top 29%, according to research firm IBISWorld.

- Kaiser Health News

What bankruptcy does to medical debt

Bankrutpcy is particulary effective at eliminting medical debt, simply because, like credit card debt, it is not a "secured" debt, nor is it a "priority debt" so it's is one of the kinds of debts that bankruptcy can eliminate, provided you are legally "insolvent" based on your current non-retirement savings and non-retirement income.

Don't use your retirement savings to pay down medical debt

Before you raid your IRA to pay down your medical debt, remember the law says you don't have to do that.

The law says you can keep your over a million dollars in retirement savings and completely, legally, eliminate your medical debt in bankruptcy. 

Other ways to deal with Medical debt

If you're not ready to file bankruptcy, here are a few things you can do to deal with harassing bill collectors regarding your medical debt.

Who's collecting your debt? The Hospital or a Collection Agency?

Find out who is trying to collect your debt. Is it the hospital itself? Or has it referred the debt to an outside collection agency. And if so find out the name of that agency and who you were talking to. And what the specific debt is for.

Negotiating with the hospital:

If you are dealing with the hospital, it is often found it "their highest price if you're paying out-of-pocket. But if you explain to them that you can't afford their highest price they may offer a price that is often as little as 1/3 of the price they originally quoted.

Negotiating with collection agencies:

Here's some sound tips from a Reddit user who used to do medical collection calls. 

What to do on every medical collections call:

  • -Get the name of the agency and the representative you're speaking with; write down date and time. This may be needed in the future if they break FDCPA or HIPAA; it can also help with disputes or conversations with management later on.
  • -Ask as many questions as you need to in order to help you learn if it's a valid debt. When was this, who was the provider, how much was my original bill, what insurance did you bill to, do I have additional bills in your system?
  • -Ask what happened with your insurance. How much did my insurance pay, did they say why this amount was left over?
  • -Call your insurance to see what happened if the agency isn't clear. There is a possibility that it can be re-billed even after it's in Bad Debt.
  • -Be friendly and polite. Agents have a good bit of freedom to grant discounts and set up comfortable payment plans, and they'll only use those kindnesses if you're not a douche.
    Also, they're humans too, probably making $2 above minimum wage, and the job is really tough because people are mean and have heartbreaking stories. Be human. It helps.


What Debt Can Be Wiped Out In Bankruptcy?
What Debts Will I Still Have To Pay After My Bankruptcy?
Legal Consumer - Bakersfield, CALaw. Jurisdictional relevance: The content of this article pertains to all US states and counties.