Filing Bankruptcy on Medical Bills: What Are Your Options?

Medical bills hit hard and fast, often after an emergency or an unexpected diagnosis. In Arizona, where out-of-pocket costs keep rising, families can find themselves choosing between prescriptions and rent.

At Yusufov Law Firm PLLC, we focus on bankruptcy solutions for people and small businesses in Mesa, Phoenix, and Tucson. In the following paragraphs, we look at how bankruptcy, state law, and alternative programs can offer relief from overwhelming medical debt.

The Impact of Medical Debt in Arizona

Arizona residents pay some of the highest hospital prices in the Southwest, so even a short hospital stay can leave a five-figure balance. Prescription costs and follow-up therapy add to the total, especially when insurance policies carry high deductibles. Once bills are past due, collection agencies step in, phone calls multiply, and lawsuits or wage garnishments may follow.

That kind of pressure makes it tough to stay current on everyday expenses.  Though medical garnishments in Arizona are capped at 10% of disposable earnings or 60 times the minimum wage, whichever is lower, even a 10% reduction in take-home pay can cause financial distress if you are living paycheck to paycheck.  The result is a snowball that grows each month, pushing families toward drastic measures.

Because medical debt is unsecured, creditors cannot seize property without a lawsuit, yet they can still place liens after judgment. Learning how bankruptcy treats unsecured debt helps many Arizonans regain control before matters reach that point.

Bankruptcy and Medical Debt: An Overview

People sometimes talk about “medical bankruptcy,” though the law does not create a separate chapter for health care bills. Instead, medical balances are treated like credit cards and old utility accounts. Filing under Chapter 7 completely wipes out qualifying unsecured debts, while Chapter 13 set up an affordable payment plan that usually eliminates most, but not all, of the qualifying unsecured debt.

When a bankruptcy petition is filed, the automatic stay stops phone calls, lawsuits, garnishments, and other collection activities. A major benefit of bankruptcy is that it immediately stops all collection activity from all qualifying creditors , so you do not need to worry about dealing with each bill individually.

Chapter 7 Bankruptcy: A Fresh Start

Chapter 7, often called liquidation, is the faster route for wiping out unsecured balances, including hospital and doctor bills. To qualify, you must pass the means test, which compares household income to the Arizona median and factors in certain allowed expenses.

Arizona exemption laws protect equity in everyday property, so most filers can keep all household goods, retirement accounts, and their homes and cars.  If a filer has non-exempt property, it may be sold by the trustee, in which case the creditors will be paid from the proceeds.  In most cases, however, this does not happen, and all medical debt gets completely erased.

There is no dollar ceiling for medical balances in Chapter 7, so even six-figure debt can be erased within four to five months, giving you a clean slate.

Chapter 13 Bankruptcy: A Repayment Plan

Chapter 13 works well for people who earn above the means-test threshold or own non-exempt property they wish to protect. Instead of liquidation, the court approves a repayment schedule lasting three to five years. You send one monthly payment to the trustee, who divides it among creditors.

Medical creditors often receive pennies on the dollar because they have the lowest priority, and Arizona households typically do not have sufficient income to pay all of their debt in full. Any unpaid medical debt, along with other unsecured debt, is discharged when all scheduled payments are complete.

A steady income is needed to file Chapter 13, yet temporary job gaps caused by an illness do not automatically block eligibility.

The table below compares the two chapters on points that matter most to medical debtors.

Arizona’s Proposition 209 and Medical Debt

Proposition 209, approved by voters in 2022, changed collection practices for medical accounts statewide. Wage garnishment on medical judgments is now limited to ten percent of disposable earnings, versus the twenty-five percent that applied previously.

The ballot measure also capped post-judgment interest at three percent or the current Federal Reserve rate, whichever is lower. That keeps balances from exploding while a payment plan is in place.

These changes help many families endure short-term hardship but do not erase debt. Bankruptcy remains the only federal tool that can discharge or reorganize balances once and for all.

Emergency Bankruptcy Filings

Sometimes, a wage garnishment has already started, or a sheriff’s sale is scheduled. In those cases, an emergency filing, also called a skeleton petition, can be prepared with basic information plus the first credit-counseling certificate. The automatic stay kicks as soon as the case is filed, stopping garnishments immediately.

With an emergency filing, you then have 1 to 3 weeks to complete and file the remaining schedules and statements. Missing these deadlines risks dismissal, so it is important to work diligently with your attorney, if you have one, to ensure that all of the necessary information is timely provided to the bankruptcy court. While the emergency option buys time, completing the full packet secures lasting relief.

Hospital Debt Forgiveness Programs

If you are not eligible for bankruptcy, or wish to avoid bankruptcy for another reason, you may be able to apply for hospital-based financial aid. Federal rules require nonprofit hospitals to offer discounted or free care, generally based on an individual’s ability to pay.. However, each hospital retains discretion in the criteria it uses to determine eligibility.   If approved, the hospital adjusts the bill, sometimes to zero. Any forgiven portion no longer needs bankruptcy protection.  However, if choosing this route, it is important to consult with a tax professional to determine if any tax liability will result from the forgiven debt.

Medical Treatment After Bankruptcy

Many people worry that a doctor will refuse future appointments after a prior balance is discharged. Arizona law allows private providers to decline non-emergency care, yet many continue seeing patients who commit to paying new charges upfront.  For routine services, shopping around will often uncover alternative providers able to provide the same or better services.

If you rely on a rare specialist, and are concerned that service will be denied if the provider’s bills are discharged in bankruptcy, there are several options to address this concern.  For example, the bill could be paid off before bankruptcy.  Alternatively, a Chapter 13 could be filed, which could allow repayment of the bill over time.  However, because timing of such payments becomes critical, and there are numerous legal issues that must be considered, it is important to obtain proper legal advice before taking any legal steps or making any payments.

Emergency rooms must treat you regardless of past filings under federal EMTALA rules.

Considering Bankruptcy for Medical Bills? Contact Yusufov Law Firm Today

Medical debt should not decide your future. Yusufov Law Firm guides clients across Arizona through Chapter 7, Chapter 13, emergency filings, debt settlement, and debt defense, always aiming for the best outcome the law allows. Feel free to call us in Tucson at (520) 745-4429 or Mesa/Phoenix at (480) 788-0098 or Contact Us online page to discuss your situation. A short conversation can reveal whether state exemptions, hospital aid, or bankruptcy fits your goals. Let’s work together toward a clean financial slate.