Medical Debt and Bankruptcy: What You Need to Know in 2025

Medical debt remains one of the leading causes of financial distress in the United States. Even with expanded health coverage and rising awareness of healthcare costs, millions of Americans continue to find themselves burdened with medical bills they cannot afford. In California, where the cost of living is already high, unexpected medical expenses can quickly push families to the brink of financial collapse.

If you are struggling under the weight of medical bills, you are not alone. Understanding how bankruptcy can address medical debt is an important step toward reclaiming your financial health. This article explores what you need to know about medical debt and bankruptcy in 2025 and what options may be available to you under California law.

The Nature of Medical Debt

Medical debt can arise from a variety of sources: emergency room visits, surgeries, hospital stays, prescriptions, and even routine care if insurance coverage is limited or absent. What makes medical debt particularly challenging is its unpredictability. Unlike other types of debt, such as credit cards or mortgages, individuals rarely plan for large healthcare expenses.

In many cases, medical bills accumulate quickly and can become overwhelming before a patient has a chance to respond. Insurance may only cover part of the cost, leaving patients responsible for deductibles, co-pays, or out-of-network services. As interest and collection fees mount, the financial strain can lead to difficult choices between paying bills or covering essentials like rent, groceries, and utilities.

Is Bankruptcy a Viable Solution?

Bankruptcy is not a decision to be taken lightly. However, for many people, it provides a legitimate and structured path to eliminate or reduce medical debt. Under federal law, medical debt is considered “unsecured debt,” meaning it is not tied to any collateral. This is the same category as credit card debt or personal loans, which makes it eligible for discharge in bankruptcy.

In California, individuals have access to two primary types of consumer bankruptcy: Chapter 7 and Chapter 13. Each has different implications depending on your income, assets, and overall financial situation.

Chapter 7 Bankruptcy

Chapter 7 is often referred to as “liquidation” bankruptcy. It allows individuals to discharge most unsecured debts, including medical bills, relatively quickly—typically within three to six months.

To qualify, you must pass the means test, which compares your income to the median income for a household of your size in California. If you fall below the threshold, you may be eligible for Chapter 7. Even if your income is above the median, other factors such as expenses and debt load may still allow you to qualify.

One of the advantages of Chapter 7 is that it offers a clean slate. Medical debt can be entirely wiped out, relieving you from future collection efforts and wage garnishments. California also offers generous exemptions that may allow you to keep your home, car, and other essential assets, depending on your circumstances.

Chapter 13 Bankruptcy

Chapter 13 is a reorganization plan designed for individuals who have a steady income but need help managing their debts. Instead of discharging medical bills outright, Chapter 13 allows you to propose a repayment plan lasting three to five years.

At the end of the repayment period, any remaining qualifying medical debt may be discharged. Chapter 13 is often a good fit for individuals who do not qualify for Chapter 7 due to higher income or who want to protect certain assets from liquidation.

Because California has high housing costs, Chapter 13 may also be beneficial for homeowners who are behind on mortgage payments and want to avoid foreclosure while also managing medical and other unsecured debt.

Will Filing Bankruptcy Affect My Credit?

Yes, filing for bankruptcy will have an impact on your credit report. Chapter 7 remains on your credit report for 10 years, while Chapter 13 remains for seven years. However, for many individuals already behind on payments or in collections, the credit damage has already occurred. Bankruptcy may actually help improve long-term credit by eliminating delinquent debts and offering a chance to rebuild responsibly.

In California, where high medical costs and economic pressure are common, many individuals have used bankruptcy as a tool to reset their finances and start fresh.

Alternatives to Bankruptcy

Before filing, it is worth exploring other options. You may be able to negotiate directly with hospitals or medical providers. Many offer financial hardship programs, payment plans, or discounts for uninsured patients. Medical billing advocates can also help review bills for errors or overcharges, which are unfortunately common.

Another alternative is debt settlement, a service we provide for clients seeking to avoid bankruptcy. In this process, we negotiate with creditors to reduce the total amount owed, aiming to secure the lowest possible settlement. This approach can be an effective way for people to resolve medical debt while maintaining greater control over their financial future.

In addition, California has strong consumer protection laws. The Rosenthal Fair Debt Collection Practices Act offers protections against aggressive or unfair collection tactics. If you believe a collector has violated your rights, you may have legal recourse.

However, if your medical debt is too large to manage and other methods have failed, bankruptcy may offer the most effective and long-term solution.

Seeking Legal Guidance

Medical debt can be emotionally and financially draining, but you do not have to face it alone. Bankruptcy laws are complex, and California has its own set of rules and exemptions that can affect your case. Consulting with a knowledgeable attorney can help you understand your rights, evaluate your options, and guide you through the process.

At the Law Offices of Brent D. George, we have helped many California residents navigate difficult financial challenges, including overwhelming medical debt. Our firm focuses on providing clear, compassionate advice tailored to your individual circumstances. Whether you are considering Chapter 7, Chapter 13, or exploring non-bankruptcy alternatives, we are here to help you make an informed decision.

Final Thoughts

In 2025, medical debt continues to be a major source of financial hardship, especially for Californians facing rising healthcare and living costs. Bankruptcy can offer a legal and effective way to regain control, but it is not a one-size-fits-all solution. By learning more about your options and consulting with a trusted professional, you can take the first step toward financial relief and peace of mind.

If you are weighed down by medical bills and unsure where to turn, know that help is available. Understanding your rights and the potential role of bankruptcy may be the beginning of your financial recovery.

For more information or to schedule a free consultation, contact us today at the Law Offices of Brent D. George. We’re here to help you move forward.