Medical Debt Doesn't Have to End in Bankruptcy

Medical bills are one of the leading causes of personal bankruptcy in the U.S., but bankruptcy should always be your last option, not your first.

What is medical debt? If you owe money to medical providers or hospitals for medical treatments and procedures, you have medical debt. Let's look at ways to avoid having to file for bankruptcy, as well as the two types of bankruptcy you can file, if you get to that point.

Medical debt isn't reserved for just uninsured people. It can also be accrued by people who do have insurance. That can happen when insurance doesn't cover all of a procedure or hospital stay, high copays (your portion of the cost upfront), or a high deductible plan (when you have to pay a lot of money before insurance pays a dime). Enter in the term underinsured. Being underinsured means you have insurance, but it still doesn't cover enough. You end up with medical debt anyway.

There's no official definition for the term underinsured, but the Commonwealth Fund considers adults with insurance plans underinsured if they experienced at least one of the following in a year:

• Out-of-pocket costs (everything you pay), excluding premiums (what you pay each month just to have insurance at all), equaling 10 percent or more of household income
• Out-of-pocket costs, excluding premiums, equaling 5 percent or more of household income, if low income (<200 percent of the federal poverty line)
• Deductibles (what you have to pay before insurance pays a dime) equaling 5 percent or more of household income

Using this definition, the Commonwealth Fund finds that 23 percent of working-age adults in the US who had consistent insurance coverage in 2024 were underinsured and thus unable to access affordable care. This is unacceptable. Health care is a human right, and everyone should be able to access affordable care. Unfortunately, we aren't there yet. Being uninsured or underinsured leaves people financially vulnerable when a medical necessity or medical crisis arises.

Another problem is that many people don't understand what their health insurance covers and doesn't cover until they've had a medical crisis and are stuck with a bill they can't pay. That actually makes sense. When people are healthy and are already juggling the five flaming bowling balls of their life, the last thing on their to-do list is reading the fine print of their health insurance coverage. It isn't light reading. It's not simple for me to understand all of the insurance plan details of what's covered and what isn't covered, and I've been navigating the healthcare system for 17 years. It takes a lot of focus, time, and bandwidth to figure it out, things that are in short supply these days. Health insurance companies intentionally make it difficult to figure out because they benefit from you being in the dark.

Using data from the 2021 Survey of Income and Program Participation (SIPP), researchers at the Kaiser Family Foundation (KFF) found that 20 million adults (almost 1 in 12) owed "significant" medical debt to a health-care provider. Of those, 14 million had medical debts over $1,000 and 3 million had debts over $10,000. Another study by KFF, using an expanded definition of medical debt that includes debt originally from medical costs but now owed to a bank, credit card company, collections agency, or family or friend, found different numbers. The results showed an estimated 41 percent of American adults (~107 million people) carrying some form of medical debt, and that 24 percent of American adults (~62 million people) had medical debt that was past due or that they were unable to pay. Among those with medical debt, nearly half (44 percent) reported owing at least $2,500, and about one in eight (12 percent) said they owe $10,000 or more. This is a legitimate crisis, and it is disproportionately affecting people of color. The Consumer Financial Protection Bureau (CFPB) has found: 28% of Black people, 22% of Latino people in the US carry medical debt, compared to 17% of white people.

Let's get into some of the changes that have been made over the last few years and some options to avoid filing for bankruptcy because of medical debt.

It used to be that medical debt would negatively affect your credit for years. Before the Biden Administration left, the CFPB finalized a rule that banned the inclusion of medical debt on credit reports, as it's not as if someone was out buying fancy cars they couldn't afford. No one gets sick on purpose. There was hope. It didn't last. In February 2025, the Trump administration put a hold on the execution of the rule, and by July of 2025, a federal judge in Texas ruled that it was beyond the scope of the CFPB. This is terrible because removing medical debt from credit reports was expected to make credit scores for many people rise about 20 points. Research shows that outstanding healthcare claims are not a good predictor of if someone can pay back a loan, yet they are often used to deny mortgage loans.

What Are Your Protections at the Federal Level?

Even though there is no federal law to remove medical debt from credit reports, the three national credit reporting agencies, Experian, Equifax, and TransUnion, have voluntarily made two very positive changes. Starting in 2022, they started removing paid-off medical debt from credit histories altogether and extending the reporting delay (the time from when your bill goes to collections to the time the collections bill can show up on your credit report) from six months to one year. While this doesn't give you more time to negotiate or ask for charity care, it does give you time to pay debt collectors before the medical debt affects your credit score. The best time to speak with billers is before your bill goes to collections. If this is you, and you need a starting place on how to talk to medical billers, see blog post One Phone Call Before You Pay a Dime on Your Medical Bill.

Starting in 2023, these same credit reporting agencies voluntarily removed medical debt that started at less than $500 from credit reports entirely. These joint measures removed nearly 70% of medical collection accounts from people's credit reports (not the underlying debt itself, just its visibility to lenders).

Did These Measures Have the Impact That Was Hoped For?

Individual credit scores did rise. Research shows people saw an average 25-point score increase after a medical collection was removed from their report. But newer research shows this didn't do much to actually improve people's access to credit overall. Why?

Medical debt often is not contained to one source of credit, which would be relieved by these measures. Often, people are so desperate to not have medical debt in collections that they take out credit cards and personal loans to pay off the debt. Putting medical debt on a credit card or taking out a personal loan isn't necessarily the wrong move. For some people it can be a good option if you can pay off the debt; however, almost 25% of adults with past-due medical bills who paid some or all of the medical debt with a credit card couldn't make the next credit card minimum payment. Your financial situation may make repayment extremely difficult, whether the debt is with a debt collector, a credit card, or a bank, and then your credit score is negatively impacted in a way that erasing medical debt does not fix.

Now, even though there is no federal law banning the inclusion of medical debt on credit reports, some individual states have passed laws to protect people's credit. Right now, these laws are in effect; however, they are still being contested at the federal level, which means that while they work right now, the issue is far from put to bed. Even though some states have passed these laws, not all of the states have passed the same laws.

It's very important to understand the three different types of laws that provide you protection:

• Type 1: Hospitals/Collections can't tell the credit bureaus you have an unpaid medical bill (also called furnishing).
• Type 2: Credit bureaus can't include medical debt on your credit report, even if they find out you have an unpaid medical bill.
• Type 3: If a lending agency other than a credit bureau, like a bank, somehow finds out that you have an unpaid medical bill, they can't use the information to inform the credit decisions they make.

Here's the breakdown:

Only Type 1: Connecticut, Virginia

Only Type 2 (reporting ban only): Colorado, Illinois

Type 1 and Type 2: Delaware, Maine, Minnesota, New Jersey (only for debts under $500), New York, Oregon, Rhode Island, Vermont, Washington

Type 1, Type 2, and Type 3: California, Maryland

What Are Your Options to Avoid Filing Bankruptcy?

• The ideal option would be to negotiate a price you can pay with the medical biller.
• Access debt management plan options through non-profit credit counseling agencies. They will negotiate with the creditors, saving you from the constant phone calls. They are able to negotiate extending repayment timelines, lower interest rates, or removing unnecessary fees.
• Get a 0% or low interest credit card or personal loan to consolidate debt. While it will lower your interest rate, you will still have to have the money to pay off the consolidated amount. Be sure to read the terms of the credit card agreement. Often, the 0% interest rate is for a promotion and is for a limited time. You could end up in a world of hurt if you don't pay off the debt before the promotional period ends. It's still an option, just be careful.
• Sell non-essential items, such as a second car or other assets. You can then use the money from those sales to pay off any debts to avoid court proceedings.
• Ask for help. You can start a GoFundMe to crowdfund to pay off medical debt.

Let me take a moment to say that no one should ever have to consider any of these options. And, let me be perfectly clear, the healthcare system isn't broken; it is, and always has been, designed to prioritize profits over patients. I also understand that saying these things doesn't change the reality of everyone who has medical debt.

Now that you have all of this in mind, let's look at your goals.

Goal #1: Get the medical bill written off. This means getting your medical bill balance brought down to $0. If the hospital is a non-profit hospital, they are required to write off a certain amount of medical debt (money that patients didn't pay) each year, so find out if you qualify for charity care. As I mentioned earlier, charity care can also be called financial assistance. See blog post One Phone Call Before You Pay a Dime on Your Medical Bill to learn about questions to ask to see if you qualify for charity care.

Goal #2: Avoid having your medical bill sent to collections. As discussed before, this can look like negotiating a lower total amount and/or a reasonable payment plan for paying your medical bill. Your negotiating power is highest before a bill is sent to collections because the medical biller, your provider or hospital, wants to get paid. If you show a willingness to pay, they are more likely to work with you. Many would rather accept partial payment directly from you than pursue a lengthy collections process. They would rather get paid something rather than nothing. You can negotiate, letting them know the maximum you are able to pay and asking for a payment plan or a settlement offer. See blog post One Phone Call Before You Pay a Dime on Your Medical Bill to learn about settlement offers.

Goal #3: Avoid the drastic measures debt collectors can take to collect what you owe on a medical bill. First of all, what are these drastic measures? Debt collection companies can go to drastic measures to collect what you owe on your medical bill. They can garnish your wages, meaning they can take money out of your paycheck before you get it. They can put a lien on your residence or car, which means they can legally take ownership of your residence or car until you pay them back. They can also sue you. I don't tell you these things to scare you. I'm telling you so that you have all of the information you need about medical bills and medical debt, so that you can avoid having these things happen to you.

So, how can you avoid this if your medical bill does go to debt collections? Work with the debt collectors to make payments. It is important to understand that debt collectors won't stop calling. This isn't a situation in which if you just don't pick up the phone, the problem will go away.

Goal #4: Seek debt relief programs. While bankruptcy is a form of debt relief, there is one more stop before you get there. There are debt relief programs that can ease the financial burden of medical debt. These programs can reduce or restructure your medical debt. They can provide options for lower interest rates, different repayment plans, reducing the total amount owed, and consolidating your debt.

Goal #5: Get rid of the medical debt. There may be a situation in which you have asked all of the questions and done everything you can to pay your medical bill, but you just can't pay it no matter what, and you are in a complete financial crisis. In that case, your only true option is to file for bankruptcy.

A quick note: what follows is general education on how bankruptcy works, not legal advice. Bankruptcy law varies by state and by your specific situation, so if you're considering filing, please talk to a bankruptcy attorney about your circumstances.

What Does Filing for Bankruptcy Look Like?

There are two types of bankruptcy for medical debt: Chapter 7 and Chapter 13. Let's get into it.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy involves the selling of all non-exempt assets to pay creditors.

So, the next logical question is, "what are the exempt assets?" Certain assets are considered exempt, which means that they won't be sold, and you get to keep them, so that you aren't left with absolutely nothing after a Chapter 7 bankruptcy. Your state determines whether you must use state-specific bankruptcy exemptions or if you can use the federal bankruptcy exemptions instead.

You need to know your state's laws about Chapter 7 bankruptcy. In both state and federal systems, exempt items include: a primary residence, up to a certain value, if you are up-to-date with your payments; a vehicle, up to a certain value, if you are up-to-date with your payments; certain retirement accounts; and some wages. In addition to these exempt items, no matter where you live, you will always keep household items and clothing, unless they are of unusually high value.

Medical debt, categorized as unsecured nonpriority debt, is often removed entirely.

While this may sound appealing, let's look closer at the pros and cons.

• Pros: Quick process (4-6 months), significant debt relief, no repayment obligation.
• Cons: Loss of property (in some cases), severe credit score impact, limited to individuals with low incomes who pass a means test.

Your other option is Chapter 13 Bankruptcy.

Chapter 13 Bankruptcy for Medical Debt

Known as "wage earner's bankruptcy," this option involves creating a 3-5 year repayment plan. Some or all medical debt is repaid over time, allowing filers to keep their assets.

• Pros: Protects important assets and preserves relationships with medical providers.
• Cons: A lengthy repayment period and partial repayment may still be required.

Medical debt can be all-consuming and overwhelming. The right next step may be a debt relief program, or you may need a complete financial reset, in which case bankruptcy may be your best option. There is no right or wrong choice. So, think carefully, weigh all of your options, and choose what is best for you and your situation.

This is exactly the kind of information I walk through in the Decoding Healthcare Program, in the Navigate Strategically piece of the framework. Understanding your options, and how to advocate for yourself no matter which path you're on, matters at every stage of a healthcare crisis. If you want help understanding your situation better, I offer a free 15-minute consult, you can grab a time here.

Definitions

Medical debt - Money you owe to a doctor, hospital, or clinic for medical care that you haven't paid yet.

Copays - A small, set amount of money you pay yourself every time you go to the doctor or fill a prescription. Your insurance covers the rest.

High deductible plan - A type of insurance where you have to pay a lot of money yourself before your insurance starts paying anything.

Underinsured - When you have health insurance, but it still doesn't cover enough. You end up owing money anyway.

Out-of-pocket costs - All the money you personally pay for health care, not counting your monthly insurance premium.

Premiums - The amount you pay every month just to have health insurance, whether you use it or not.

Deductibles - The amount you have to pay yourself before your insurance starts helping pay your medical bills.

Expanded definition of medical debt - A wider way of counting medical debt. It includes not just bills owed straight to a hospital, but also medical costs paid for with a credit card, a loan, a collections agency, or money borrowed from family or friends.

Credit report - A record that tracks money you've borrowed and whether you paid it back on time. Banks, landlords, and others look at it to decide if they trust you to pay them back.

Credit score - A number, usually between 300 and 850, that sums up how trustworthy you look as a borrower, based on your credit report. Higher is better.

Credit bureau (credit reporting agency) - A company, like Equifax, Experian, or TransUnion, that collects information about your debts and puts it on your credit report.

Medical biller - The person or department, usually at a hospital or doctor's office, in charge of sending you your bill.

Medical collections - What happens when a medical bill goes unpaid and gets handed off to a separate company whose job is to collect that money.

Furnishing - The act of a hospital, doctor's office, or debt collector sending information about your unpaid bill to a credit bureau. When a law "bans furnishing," it means they're not allowed to send that information in the first place.

Creditors - People or companies you owe money to.

Consolidation of debt - Combining several different bills into one single payment, so you have one bill to keep track of instead of many.

Non-profit hospital - A hospital that doesn't exist to make money for owners. Because of this, the law requires these hospitals to give a certain amount of free or reduced-cost care to people who can't afford to pay.

Written off - When a hospital or doctor agrees you don't have to pay part or all of your bill. Your balance goes down, sometimes all the way to zero.

Charity care - Free or reduced-cost medical care, especially from non-profit hospitals, for people who can't afford their bill. Also called financial assistance.

Settlement offer - When you offer to pay less than what you actually owe, and the biller or collector agrees to accept that smaller amount as full payment.

Debt collector - A company hired, or that bought your debt, whose job is to get you to pay a bill you haven't paid yet.

Garnishing wages - When money is legally taken directly out of your paycheck before you ever see it, to pay off a debt.

Lien on car or home - A legal claim that lets someone take ownership of your car or house if you don't pay back money you owe.

Debt relief - Help that makes a debt easier to deal with, like lowering how much you owe, lowering your interest rate, or giving you more time to pay.

Debt relief program - A specific plan, usually run by a company or non-profit, that helps you pay down debt through things like a payment plan, lower interest rate, or reduced balance.

Non-exempt assets - Things you own that can be sold to pay off debts during a Chapter 7 bankruptcy.

Exempt assets - Things you own that are protected and cannot be sold during bankruptcy, like your home (up to a certain value), your car, and retirement accounts.

Unsecured non-priority debt - Debt that isn't backed by specific property (like a house or car) and isn't required by law to be paid first. Medical debt usually falls into this category, which is why it's often wiped out in Chapter 7.

Means test - A test comparing how much you earn to others in your state, used to decide if you qualify for Chapter 7 bankruptcy.

Frequently Asked Questions

What does it mean to extend the reporting delay? It means that the debt collector has to wait a certain amount of time, in this case 1 year, before reporting the unpaid medical bill to a credit reporting agency.

Can medical debt on my credit report affect anything besides loans, like renting an apartment or a job? Yes, it can affect both, although running a credit check for a job is less common. It is primarily done if the job requires you to handle money, gives you access to sensitive financial information, or requires a security clearance, but can be done for other jobs, as well. Unfortunately, for employment, it is virtually impossible for a potential employer to be able to distinguish between medical debt and any other kind of debt, so you could end up being judged for having a medical crisis versus reckless spending. Two points worth noting: 1) a potential employer must get your explicit permission before checking your credit report, and 2) some states, like California, Illinois, and New York City, have gone as far as to restrict when employers can check your credit at all, mostly limiting it to jobs in which you manage or handle money.

Does my state's law mean I don't owe the money anymore, or just that it won't hurt my credit? Your state's law does not mean that you don't owe the money anymore. You still owe the money. It just means that it won't hurt your credit.

How do I find out if I am protected from debt on my credit report by my state? You have some form of protection from debt on your credit report if you live in California, Connecticut, Colorado, Delaware, Illinois, Maine, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia, or Washington.

If I don't live in one of those 15 states, does that mean I have zero protection? No, you still have the three protections established by the three national reporting credit agencies: 1) any paid-off medical debt will be removed from your credit report, 2) medical debt that began as $500 or less will not be included on your credit report, and 3) the one-year reporting delay.

What if I move to a different state, does my protection travel with me? No, it does not. It does not matter where you lived when the debt originated. If you lived in a state that has protection and moved to a state that doesn't have protection, you will only be protected by the rules set by the credit bureaus: 1) paid-off debt removed, 2) medical debt under $500 not included, and 3) one-year reporting delay.

What does it mean to consolidate debt? It means to take multiple sources of debt and compact it into one singular bill. So, if you had medical debt and credit card debt, you would combine the two, and pay one amount to pay off the debt.

What does a non-profit credit counseling company do? A non-profit credit counseling company will negotiate with creditors, usually debt collectors, to potentially decrease the total amount of debt, lower interest rates, extend repayment timeframes, or get unnecessary fees removed.

What's actually different between Chapter 7 and Chapter 13, in one sentence? With Chapter 7 bankruptcy your assets are sold to cover your debt, bringing your balance to $0, and with Chapter 13 bankruptcy, you are given a repayment plan to pay off your debt.

What's a "means test" in plain English, and how do I know if I'd pass it? A means test compares your income to the average income for a household your size in your state. If you earn less than that average, you qualify for Chapter 7 automatically. If you earn more, the court looks closer at your budget to see how much you could realistically afford to pay back. If you could pay back a meaningful amount, you likely won't qualify for Chapter 7 and would be pointed toward Chapter 13 instead.

What does it mean to have your debt discharged? It means that your debt is gotten rid of and your balance is $0.

Sources

"Best Medical Debt Relief Companies of 2026," Forbes, July 2026. https://www.forbes.com/advisor/l/medical-debt-relief/

"The US Medical Debt Crisis: Catastrophic Costs of Insufficient Health Coverage," by Stephen Nuñez, Roosevelt Institute, May 15, 2025. https://rooseveltinstitute.org/publications/medical-debt/

"The Burden of Medical Debt in the United States," by Shameek Rakshit, Matthew Rae, Gary Claxton, Krutika Amin, and Cynthia Cox, February 12, 2024. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/

"Federal Judge Reverses Rule That Would Have Removed Medical Debt From Credit Reports," by Adriana Morga and Cora Lewis, AP News, July 15, 2025. https://apnews.com/article/cfpb-medical-debt-credit-reports-41f212ee6b89f9902deb267d75ab8443

"Consumer Credit and the Removal of Medical Collections from Credit Reports," Consumer Financial Protection Bureau, April 2023. https://www.consumerfinance.gov/data-research/research-reports/consumer-credit-and-the-removal-of-medical-collections-from-credit-reports/

"How Many Adults Have Past-Due Medical Bills on Credit Cards?" by Michael Karpman, Fredric Blavin, and Dulce Gonzalez, Urban Institute, September 5, 2023. https://www.urban.org/research/publication/how-many-adults-have-past-due-medical-bills-credit-cards

"The Latest on Keeping Medical Debt Out of Credit Reports," National Consumer Law Center, 2025. https://library.nclc.org/article/latest-keeping-medical-debt-out-credit-reports

"Chapter 7 Bankruptcy Basics," United States Courts. https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

"Can Medical Debts Prevent You From Getting a Job?" Credit.com, July 17, 2025. https://www.credit.com/blog/can-medical-debts-prevent-you-from-getting-a-job

"Credit Checks in Hiring: Key Issues for Financial Services Employers After Medical Debt Reporting Restrictions," Jackson Lewis, October 17, 2025. https://www.jacksonlewis.com/insights/credit-checks-hiring-key-issues-financial-services-employers-after-medical-debt-reporting-restrictions

Coming Next Week: Premiums, Deductibles, Copays...Finally Explained