Navigating Medical Debt: Tips for Protecting Your Finances
Are you drowning in medical debt? You’re not alone. Millions of Americans struggle with healthcare costs and it’s one of the main reasons bankruptcy is filed. In today’s podcast, we will review a question from the Reader’s Question Forum that focuses on the pros and cons of debt consolidation and when filing for bankruptcy might be the right option because of hospital bills.
Updated on February 12, 2025.
Listen to this article.
Other topics include sneaky hospital billing practices to watch out for and provide tips to protect yourself financially. So, whether you’re facing a mountain of medical bills or simply want to be prepared, this episode is for you.
I’m MIA
All right, welcome back. Or I should be saying I’m welcoming myself back. The reality is that I’ve been MIA. Those of you from Miami know what I’m talking about (Miami International Airport). But I admit, I’ve been absent for a while.
The good news is that I’ve continued publishing blogs, but I must be honest with you. I’ve had to grade approximately 300 law school essays over the last few weeks, so I disappeared on you. And I’m sorry about that, but at least I was able to continue to publish blogs.
So, if you are okay with reading, the blogs are there for you, but I have to catch up now with the videos. I’m going to start working on videos almost daily to catch up. So you will see in a little bit that I’m focusing today on the blog I wrote earlier.
Regardless, I still want to get these videos out and convert them to podcasts because I know it’s easier for some of you. Whether you’re on the go, walking your dog, jogging, whatever.
As to me, as they used to say in the old days, where’s Waldo? Remember that game of trying to find Waldo in pictures? I don’t know if they still have that, but here I am.
Question Submitted by a Reader on Hospital Bills and Medical Billing
All right, so today I will focus on this; it’s a question from Barbara, one of our readers. It’s a good question, and it’s really an issue where you could think I’m ready to file for bankruptcy, but the answer is not yet. It depends on a lot of different facts, taking into consideration all the facts about your situation.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
Now, before we get to the reader’s question, I want to talk about how we got here, and this starts with the 2005 law, the Bankruptcy Abuse Prevention and Consumer Protection Act. That’s a mouthful.
I always love this. Abuse. What abuse? What are we talking about? And by the way, what are you protecting the consumers from? I don’t understand, but I will tell you that this is nothing but political talk.
The reality is that every system could be abused, right? We saw that with COVID. People are getting COVID loans and buying a Lamborghini. That was a guy in Miami.
But the reality is that the overwhelming majority of bankruptcies are not tied to abuse at all. It’s an exaggeration. These are political talking points because, at the end of the day, they, meaning creditors, have better lobbyists than you do. And I hate to be cynical, but that is the reality.
The Top Three Reasons Debtors File For Bankruptcy
So, with the bankruptcy court system, what abuse? These are the three reasons people end up filing for bankruptcy. There are many reasons, of course, but the top three reasons are:
Health-related issues. People that have missed work two or three weeks because they’re sick, they’re in the hospital when they get out of the hospital, insurance isn’t going to cover that for the most part, unless it’s a government job or something similar since there’s generally that 20% that you have to pay.
Twenty percent of $100,000 is $20,000 we don’t have. So that’s one of the main reasons people file for bankruptcy—medical bills or hospital bills, loss of income because of health-related issues, and divorce. But today, we’re going to focus on medical bills, and that’s important because it ties directly into the divorce issue.
Should Medical Bills be Negotiated or Consolidated, or is it Better to File for Bankruptcy?
So that’s Barbara’s question. Barbara is trying to determine the best choice: negotiate the debt total, consolidate the medical bills with other debt, or file for bankruptcy.
Let’s figure out how this applies to Barbara’s facts. As always, if you have a question, feel free to send me an e-mail at Alex@bankruptcyblog.
Bankruptcy and Unsecured Debt
OK, so here we go. What is an unsecured debt? Well, credit cards. That’s an easy example, but medical bills and personal loans are considered unsecured debt.
Now, creditors love to lie. They want your money. So please don’t believe everything creditors tell you. Believe what I’m telling you. A judgment can be wiped out in bankruptcy.
Creditors like to say that you can’t file for bankruptcy since they have a judgment. Says who? Says what law? The law in 2005 was clear on that issue, and bankruptcy law before that was also clear.
So, if there’s a car repo or a foreclosure, it doesn’t mean that bankruptcy cannot be filed. It could be filed, so don’t guide yourself by what creditors say, even assuming they know what they’re talking about. They’re not the most credible people.
Fact Pattern Related to the Reader’s Question
Now, let’s look at Barbara’s issue. As you can see in this PowerPoint presentation, she has outstanding medical bills and attorney’s fees for divorce. Those are two of the top three reasons I mentioned.
Again, abuse? What abuse? Congress never was able to provide any evidence. Some people abuse any system, and there are always some people, but it’s not overwhelming.
Barbara wants to know whether bankruptcy should be filed or their debt consolidated. It sounds like a simple answer, but it’s not because filing for bankruptcy is being able to strategize and make the right decisions at the right time. So, let’s go with the attorney’s fees first.
Domestic Support Obligations
When the law was changed in 2005, guess what? Lawyers in family court lobbied for a change in the law in their favor. In this case, they are not eliminating all types of attorney’s fees with bankruptcy. That includes what we call DSOs or domestic support obligations. What is a domestic support obligation?
Simple enough to define. We will look at child support as well as alimony or spousal support. If there is a child support judgment, you can’t turn around and file for bankruptcy tomorrow to eliminate that judgment or obligation.
Bankruptcy will not make that debt disappear, but the change in 2005 also said that attorney fees related to that issue cannot be discharged in bankruptcy either.
Now, think about that for a second. If I take you back to court because you’re not paying child support and I asked the court to award me fees, the court agrees, and I was awarded $1,000 in fees, and you file for bankruptcy. I still get paid.
Those fees are not going to be eliminated in bankruptcy. But, other debts that are part of the divorce, such as a car repossession, would be. But not attorney’s fees related to DSOs. So keep that in mind. It’s not always going to be discharged.
Yes, other attorney’s fees are clear; that won’t be an issue. We can go ahead and discharge other fees. For example, if there’s a foreclosure, and both spouses are on the mortgage, that debt would be discharged with bankruptcy.
So here you have Barbara, who has to deal with attorney fees and medical bills from the divorce case. So, how are we going to handle this? Simple enough.
How to Handle Medical Bills with Bankruptcy
When we’re talking about medical bills, you have to sound like a lawyer. Question everything. You can’t accept something as fact. For example, you visit my office and say, “I have medical bills I want to file for bankruptcy.”
Okay, how much in medical bills? Is it $1,000, or is it $100,000? Because that’s going to determine what steps we are going to take.
Can you afford the medical bills? Yes or no? If the answer is that you can’t afford it, then, of course, we’ll be leaning towards bankruptcy. But here’s the catch. Are you done? Did you go in for a broken finger, and it’s fixed? There are no more treatments? No more therapy or anything else? The answer is that you can then file for bankruptcy.
But do you have ongoing treatments? What other debts are not discharged in bankruptcy? Debts that are not listed in the petition, and debts don’t exist.
You can’t file for bankruptcy and say, in six months, I will have other debts. That debt has to exist. It could be a pending lawsuit. That’s fine; there’s already debt associated with that lawsuit.
But you can’t say I’m going to go to a hospital in one year. Let me go ahead and include them in bankruptcy today. You have to go to the hospital first and then include the hospital bills.
So, If you have ongoing treatments, now’s not the time to file for bankruptcy. But what if you are about to get sued? Well, let’s look at this from a practical standpoint.
Creditor Lawsuits Take Time
Will you get sued tomorrow by a hospital because you haven’t paid a bill and were in the hospital a month ago? No, that’s not going to happen. It’s going to take a while.
They’ll try to negotiate for a while, and eventually, the debt gets transferred to a debt collection lawyer or agency. I wouldn’t be surprised if you told me a lawsuit didn’t happen for two or three years.
But what if the lawsuit is filed? The answer is straightforward. Delay, delay, delay. Delay this case as much as possible.
That means filing a response to the petition. That means trying to work out a negotiation with these creditors. There’s nothing wrong with trying to reach an agreement. You might reach an agreement and close this case out. And if you do, fine. We can skip bankruptcy as long as you can afford the payments.
But if you can’t afford the bills, bankruptcy may be the answer, but a delay may be necessary, especially during tax season. I’ve written a blog that you can see below on the issue of delaying filing for bankruptcy based on tax refunds.
When to File for Bankruptcy
During tax season, if you’re getting a refund, this is not the best time to file for bankruptcy, even though you think, “I have money to hire the lawyer, so now is a good time to file for bankruptcy.” Maybe. Maybe not. It depends on how much the tax refund is for. So keep that in mind.
Sometimes, we have to sit back and wait. Let nature take its course, and then we’ll go ahead and file for bankruptcy. So that’s really what it comes down to.
So, just because you can include medical bills in the bankruptcy, it doesn’t mean you are filing for bankruptcy today. We might have to wait and see, especially if more treatments are coming. If so, then get those treatments out of the way. Then, worry about bankruptcy.
If there’s a lawsuit, then you know the answer. The answer is to delay the case. Then, move forward with the bankruptcy when the time is right.
Hospital and Medical Billing Issues
I want to tell you about this, and I have written another blog on it. You can find that blog below.
Hospital billing is always an issue, especially for lawyers like me who have handled personal injury cases in the past. There are double billing issues. I’ve had clients say, “I don’t know who this person is. Why am I getting a bill from them?”
I’m not exaggerating when I say, you know, that doctor that passed by your hospital room at five o’clock in the morning knocked on the door, peeked his head in, and asked how you are doing.
That doctor just got paid for that. That’s that $12.00 medical bill that you’re receiving. That’s where that comes from.
Be Careful with This Billing Practice from Hospitals
I want to take this issue further because this is a big problem. You go to the hospital and don’t have insurance, or your insurance only covers so much. The hospital always has that person who visits you in the hospital room and says, “I’m with billing.” And in a very nice way, you are being asked how you will pay for this before we show you the way out the door.
Well, that person might ask you for identification. Okay, you hand over your driver’s license, and more identification is requested, such as a passport. Who takes a passport to a hospital?
So you are asked, “Do you have a credit card, debit card, or anything else?”
You respond, “Sure,” and hand over your credit card that gets swiped. They don’t know the balance, but say they try $2,000 and it gets rejected, or worse, maybe you have a large line of credit available and $5,000 gets accepted. Just like that, your credit cards have been maxed out!
Did they have your permission to? Maybe. Did you read the ten-page disclaimer as you’re feeling horrible and feel like the world will end? You feel like you are going to die any minute now. Did you read that disclaimer?
I’m pretty sure you didn’t. Like me, I’m sure you signed it without reading it. However, the disclaimer reads that you agree to pay for services when rendered, and you just did with your credit card.
Even worse, with your debit card, all the money in your checking account is gone. Now what? What if the mortgage or your rent payment was due that Friday? What now?
Do you think the bank cares that this is what happened at the hospital? They’re likely to say that the hospital is allowed to charge for their services, and that’s what they did. “It’s not our problem.”
And just like that, you are facing an eviction or foreclosure. However, you can do a simple trick: keep most of your money in your savings account and don’t have it tied to your checking account.
Leave a minimal amount of money in the checking account, so if they take twenty bucks, they take twenty bucks. Good for them and for you as you live to see another day.
At least they didn’t get the $2,000 or $5,000.
So when the billing department asks for a debit card, the answer is, “I don’t have a debit or credit card. I didn’t bring it with me.
My wife, not too long ago, went to the hospital, and that’s what triggered my memory and inspired me to write this blog post. She read my mind and interrupted me, “I know, I left my credit cards in the car.”
Realistically, a credit card is not a form of identification. Your driver’s license is. So be very careful with that. You want to avoid getting wiped out financially.
Will we consolidate or delay the case because of more treatments, or are we ready to go into bankruptcy? The answer is that it always depends. It depends on the particular set of circumstances.
So, that was the question from our reader, Barbara. So, thank you for contacting me and letting me know about this.
For those of you using my bankruptcy law textbook in your paralegal or legal studies courses. You can always go back and check out the blogs, which have information that could help you in your classes.
I will be creating blogs and videos tied into the textbook, as well as the bankruptcy process that will help paralegals and legal studies students, so it will give you a better understanding of all the different steps when filing for bankruptcy.
So always use the blog to supplement the material, as it will help you better understand bankruptcy. For example, if there are questions on exemptions, look for the blogs related to exemptions.
To close this out, follow me on social media. I’m ready for followers. You can find me on Facebook as well. Just type up bankruptcy blog. You should be able to find me.
And, of course, if you have any questions that you want to be posted in the Reader’s Question Forum, you know how to reach me: alex@bankruptcy.blog.
So I’ll continue working on more videos and looking forward to producing another one probably tomorrow. So I promise I’m coming back out of hiding. I have a regular schedule now.
Take care, everybody, and have a good rest of your week.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.
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