Medical debt can be an overwhelming burden, often resulting from unforeseen health crises. Fortunately, federal bankruptcy laws provide a legal path for individuals in Tennessee to discharge or restructure this substantial unsecured debt. To learn more about whether your debt can be discharged during bankruptcy, continue reading and contact a skilled Memphis, TN medical debt lawyer today.
How is Medical Debt Accrued?
Medical debt is generally defined as any outstanding financial obligation incurred for healthcare services, procedures, medical equipment, or prescription medications that is not covered by insurance, government programs like Medicare or Medicaid, or other means. It represents the patient’s share of costs that remain unpaid after all third-party payments have been applied, often including deductibles, co-pays, and services rendered by out-of-network providers.
Medical debt accrues through several ways. The main cause is insufficient or no health insurance coverage, leaving the individual responsible for the entire cost of treatment, especially for emergencies or chronic conditions. Even with insurance, high-deductible health plans can lead to significant out-of-pocket costs before coverage kicks in. Debt also piles up when claims are denied by insurers, when patients receive “surprise bills” from providers they did not know were out-of-network, or when people delay or skip necessary care, only to require more expensive treatment later. Once a bill goes unpaid, interest, late fees, and collection agency costs can rapidly inflate the total amount owed, turning a manageable co-pay into substantial debt.
Can Medical Debt Be Discharged in Bankruptcy?
Yes, in most cases, medical debt can be fully discharged during bankruptcy proceedings. Medical debt is considered “unsecured debt,” meaning it is not tied to a specific asset, unlike a mortgage or car loan.
In a Chapter 7 bankruptcy, often called a liquidation bankruptcy, the goal is a complete discharge of most unsecured debts, including medical bills. If a debtor qualifies by passing the means test, their non-exempt assets are sold to pay creditors, and the remaining unsecured debts are eliminated. Since medical debt is unsecured, it is treated exactly the same as credit card debt or personal loans in this process.
For those who do not qualify for Chapter 7 or wish to keep certain assets, Chapter 13 bankruptcy involves reorganizing debts into a three-to-five-year repayment plan. While the medical debt is not immediately eliminated, a portion (or sometimes all) of it is paid back through the plan, and any remaining balance is discharged upon successful completion. The ability to discharge medical debt through bankruptcy offers a powerful way for individuals overwhelmed by healthcare costs to get a financial fresh start.
Will Filing for Bankruptcy Stop Medical Debt Collections and Lawsuits?
Yes, once a bankruptcy petition is filed, an automatic stay immediately goes into effect. This is a powerful injunction under federal law that legally prevents nearly all collection activities by creditors, including medical providers and collection agencies.
The automatic stay requires creditors to cease all efforts to collect the debt, which includes stopping collection calls, letters, wage garnishments, bank levies, and halting any ongoing or pending lawsuits related to the medical debt. Any creditor who violates the stay can face serious penalties from the bankruptcy court. This provides immediate relief to the debtor, allowing them to proceed with the bankruptcy process without the constant pressure of collection actions.
