Medical Debt Is the Leading Cause of Bankruptcy
An estimated 66.5% of all bankruptcies in the United States are tied to medical issues -- either the bills themselves or lost income from illness. But most people who owe medical debt have rights they never exercise, simply because no one tells them those rights exist.
This page covers the federal and state protections available to you, whether you owe $500 or $500,000 in medical bills.
The No Surprises Act (2022)
The No Surprises Act (Public Law 116-260, effective January 1, 2022) protects patients from surprise out-of-network bills in three key situations:
1. Emergency services: You cannot be balance-billed for emergency care, regardless of whether the facility or provider is in-network. Your cost share is capped at the in-network rate.
2. Non-emergency services at in-network facilities: If you go to an in-network hospital but are treated by an out-of-network provider (anesthesiologist, radiologist, etc.), you are protected from the balance bill.
3. Air ambulance services: Out-of-network air ambulance providers cannot balance-bill you beyond the in-network cost-sharing amount.
If you receive a surprise bill that violates the Act, you can file a complaint with the Centers for Medicare & Medicaid Services (CMS) at 1-800-985-3059.
Hospital Charity Care -- The Right Most People Miss
Under 26 U.S.C. 501(r), every nonprofit hospital in the United States must maintain a financial assistance policy (commonly called charity care). This is not optional -- it is a condition of their tax-exempt status.
If your household income falls below a certain threshold (typically 200-400% of the federal poverty level, depending on the hospital), you may qualify for:
Free care -- the entire bill is written off.
Reduced-cost care -- you pay a discounted amount, often 50-80% off.
Key facts most people do not know: You can apply for charity care retroactively, even after a bill has gone to collections. The hospital must make its financial assistance policy available in your language. The hospital cannot use extraordinary collection actions (lawsuits, liens, garnishment) without first making reasonable efforts to determine if you qualify.
Credit Reporting Changes (2023)
The three major credit bureaus (Equifax, Experian, TransUnion) implemented major changes to medical debt reporting:
Paid medical collections are no longer reported at all.
Unpaid medical collections under $500 are no longer reported.
New medical debt does not appear on your credit report until 12 months after the date of first delinquency (previously 6 months).
Additionally, the CFPB proposed a rule (2024) that would remove all medical debt from credit reports entirely. Even without that rule, lenders are increasingly ignoring medical debt in underwriting decisions, especially for FHA and VA loans.
State-Level Protections
Many states have enacted protections beyond federal law:
Surprise billing laws: Over 30 states have their own surprise billing protections, some stronger than the federal No Surprises Act.
Medical debt interest caps: Some states cap interest on medical debt at rates far below typical commercial rates.
Homestead exemptions: Most states protect your home from medical debt judgments through homestead exemption laws. If you are facing a lawsuit, check your state's bankruptcy exemptions.
Statute of limitations: Medical debt has a statute of limitations (typically 3-6 years depending on your state). After it expires, the debt is time-barred and cannot be enforced through a lawsuit, though collectors may still contact you.
When Bankruptcy Makes Sense for Medical Debt
Medical debt is general unsecured debt under the Bankruptcy Code. It is fully dischargeable in both Chapter 7 and Chapter 13. There is no limit on the amount of medical debt you can discharge.
Bankruptcy may be the right move if: your medical debt exceeds your annual income; collectors are garnishing wages or threatening lawsuits; you have other debts (credit cards, personal loans) piling up alongside the medical bills; or charity care and negotiation have failed.
Check whether you qualify: Free Discharge Screener. Learn about costs: How Much Does Bankruptcy Cost?
Negotiation and Dispute Strategies
Request an itemized bill. Hospitals routinely charge for items never provided. Studies show up to 80% of medical bills contain errors.
Compare to Medicare rates. Use the CMS Medicare Physician Fee Schedule to see what Medicare pays for the same procedure. Hospital charges are often 3-10x the Medicare rate.
Negotiate before paying. Most hospitals will accept 20-50% of the billed amount if you offer to pay in a lump sum. Get any agreement in writing before sending payment.
Dispute with the credit bureaus. If a medical collection is on your credit report and contains any error (wrong amount, wrong date, wrong provider), dispute it under the Fair Credit Reporting Act (15 U.S.C. 1681).
Frequently Asked Questions
Can medical debt be discharged in bankruptcy?
Yes. Medical debt is unsecured, non-priority debt and is fully dischargeable in both Chapter 7 and Chapter 13 bankruptcy. It is one of the most common reasons people file.
Does medical debt still appear on credit reports?
As of 2023, the three major credit bureaus removed medical collections under $500 and all paid medical collections from credit reports. Unpaid medical collections over $500 still appear but only after 12 months.
What is the No Surprises Act?
The No Surprises Act (effective January 2022) protects patients from surprise bills for emergency services and certain non-emergency services at in-network facilities provided by out-of-network providers. It caps your cost at the in-network rate.
Can a hospital sue me for medical debt?
Yes, hospitals and medical providers can sue for unpaid bills. However, many nonprofit hospitals are required to offer financial assistance programs (charity care) under IRS rules, and suing patients without first screening for charity care eligibility may violate those requirements.
What is hospital charity care?
Nonprofit hospitals must maintain financial assistance policies (charity care) under 26 U.S.C. 501(r). If your income is below a certain threshold (often 200-400% of the federal poverty level), you may qualify for free or reduced-cost care -- even after a bill has been sent to collections.
Check your bankruptcy discharge eligibility with our free screening tool.
Free Discharge Screener