Medical Bankruptcy what happens after you File

For many, ‘bankruptcy’ is a familiar term heard from time to time through the mass media in relation to institutions and individuals who fall down from their great financial heights. However, the term ‘medical bankruptcy’ is relatively new and seems to have attracted significant attention in the past few years. The reason for such attention is its significant contribution towards large number of bankruptcy cases filed in the United States.

How does medical debt accumulate?

According to a recent study published in the American Journal of Medicine, almost 62% of bankruptcies took place due to unaffordable medical bills. Although it is true that many Americans posses a Medical Insurance, the study argues that, when the illnesses are intense, long lasting and debilitating, the cover provided by Medical Insurance would not be adequate and the likelihood of patients seeking other means of debt payments such as credit cards would be high. Due to the high cost of receiving medical treatment, such debts tend to accumulate and could seriously put the person’s financial status in jeopardy.

What are the advantages of gaining medical bankruptcy relief?

For a person who do not have the strength to repay medical bills, medical bankruptcy status will allow clearing of all debt including the credit card debts and other forms of personal debt. It will increase the persons chances of retaining his or her primary residence which may go under the hammer if the person is unable to payout the debt. Furthermore, no legal action is possible against a person recognized as medically bankrupt in relation to recovering the medical bills by collecting agencies or by the credit card companies. At the same time, it will improve the personal financial status and the amount of disposable income retained with the person each month.

Lastly, it will clear the burden of being stressed out by multiple medical debts and it will give enormous mental freedom for such persons whom could be suffering from chronic ill health.

What are the disadvantages of claiming for medical bankruptcy?

Although it seems to be a good idea to file for medical bankruptcy when someone is at lost in repaying medical bills, it may not always be the recommended option. There are multiple reasons for it to be the last resort and among these, bad FICO rating which may last up to 10 years, increased cost for loan and mortgage refinancing, partial loss of medical insurance, and bad publicity are few to be named. At the same time, once relief is obtained through medical bankruptcy, the same could not be done for further 7 years and the medical condition which lead to the piling up of the medical bills would not be covered again as it is now considered as an ‘existing illness’.

What is the method of filing for medical bankruptcy?

Filing for medical bankruptcy is far from being an easy task. It involves many forms, evidence of income, evidence of debt, creditor information and certain other details pertaining to a bankruptcy case.

In order to file for bankruptcy, one should collect a set of forms from the bankruptcy court clerk’s office or from most of the stationary shops. Information pertaining to each creditor including non-medical creditors should be filled in the creditor matrix form. Rest of the documents should contain account informations including financial statements at least for the last 3 months as well as tax returns for the same period.

At the same time, one should also decide to which category they would fall when it comes to ‘chapter 7’ bankruptcy or ‘chapter 13’ bankruptcy. Many would find themselves aligned with ‘chapter 7’ bankruptcy as the debt value would far exceed the person’s ability to repay the same over certain period of time as concluded by ‘chapter 13’. However, the task of applying for medical bankruptcy could be made easier and successful if one could undertake the services of a legal professional who has a proven track record in providing the same.

Once the forms are filled, it should be handed over to the bankruptcy court clerk’s office in adequate copies with one copy retained for future reference.

Is there any other option apart from claiming ‘medical bankruptcy’?

Debt settlement is a possible alternative to medical bankruptcy claiming although it may not be suitable for all. It involves negotiating with the creditors a realistic repayment plan which will benefit both parties without having to go for a legal proceeding.


Medical Bankruptcy in the United States, 2007: Results of a National Study, The American Journal of Medicine, 2009.