Managing Medical Debt: Bankruptcy vs. Consolidation (Insights from a Law Professor)

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Medical debt is the silent crisis that leads to the number one reason debtors file for personal bankruptcy. It’s an issue I refer to in my textbook, Consumer Bankruptcy Law, and across my blogs and YouTube channels. My goal is to continually demystify what truly drives bankruptcy. Even recently on my LinkedIn feed, someone posted a comment, “that in the off chance someone files for bankruptcy for medical bills…” I had to correct that individual that it isn’t an “off-chance,” but a reality.

I recently heard from a reader, Craig, whose wife is facing this exact dilemma: a mountain of medical bills and uncertainty about her next steps. This post dives into the options, from debt consolidation to bankruptcy, to help navigate the path toward financial recovery.

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Craig’s wife is facing a mountain of medical bills and is wondering what should be her next step. This blog post dives into the issue of medical debt and what options to consider to get rid of debt and take steps toward financial freedom.

Key points:

• Medical bills are a common reason people file for bankruptcy.
• Not all debts can be eliminated in bankruptcy.
• While bankruptcy might be an option due to medical bills, depending on the situation, it might be best to file medical treatments have been completed.

Reader’s Question – Reader’s Question: Consolidation vs. Chapter 7 Bankruptcy or 13

The first Reader Question comes from Craig, who asks on behalf of his wife: Is debt consolidation or filing for Chapter 7 or Chapter 13 bankruptcy the better choice for managing substantial medical debt?

This is a frequent real-world scenario that many face. In this case, Craig’s wife was also carrying debt from a prior divorce, including attorney’s fees. Critically, her medical treatments were continuing. This detail immediately complicates the decision, as the timing of any bankruptcy filing is often the single most important tactical decision.

The Impact of BAPCPA on Medical Debt

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 fundamentally changed the landscape of consumer filings. I’ve analyzed this in my writings and referenced it in my classes that the political narrative surrounding BAPCPA focused heavily on preventing “abuse” (it’s even in the title). Yet, decades of data demonstrate that the primary drivers for bankruptcy remain medical bills, health issues, and divorce, not financial misconduct.

Avoid Bankruptcy Because of Hospital Billing Tactics

BAPCPA impacts every part of the filing process, but the core issue for Craig’s wife is one of timing and classification.

Once I knew that Craig’s wife had to continue with her treatments, that meant more medical bills. Be aware that bankruptcy doesn’t eliminate all debts. This includes debts you forget to list in your petition and any new debts you take on after filing. There is no exception for that because it’s medical bills.

The Tactical Decision: Timing the Filing of the Bankruptcy Petition and Non-Dischargeable Debt

The decision for Craig’s wife depends on two factors: the completion of medical treatments and the nature of her existing debt.

Timing: New debts acquired after the bankruptcy filing are generally not discharged. Therefore, filing prematurely, before the bulk of the medical treatments are complete, is a common error that can immediately negate the fresh start.

Classification: It is critical to address the divorce debt. Debt related to child support or alimony falls under Domestic Support Orders (DSOs), which are non-dischargeable under 11 U.S.C. § 523(a)(5). However, depending on the settlement’s wording, some attorneys’ fees or debts assumed in the divorce might be dischargeable.

Final Note: I hope this analysis helps guide your next step. Best wishes to your wife for her recovery.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.