Are Medical Bills Considered Consumer Debt?

Medical debt is unsecured debt and is considered consumer debt. The unsecured nature of medical debt makes it similar to credit card debt. No collateral is pledged for medical debt, with the threat of debt lawsuits -- and possible wage or bank garnishment -- the most powerful weapon debt collectors have to collect on unpaid medical bills.

Insurance Woes

People without insurance coverage are the most vulnerable to medical bills. Even routine, non-emergency medical treatment can cost thousands of dollars, with hospital stays or serious treatment costing much more. It is not unusual for some people without insurance to accumulate medical debt exceeding $50,000.

Few Remedies

The options are limited for resolving large medical bills. Bankruptcy, especially Chapter 7 bankruptcy, is the most effective remedy for completely eliminating medical debt. However, all debts have to be included in bankruptcy, making it impossible to file bankruptcy on medical debt alone. Chapter 7 completely eliminates medical debt and other unsecured debt in just a few months. Real estate such as a primary residence can be protected during Chapter 7 through the use of exemptions. An exemption protects an asset from being sold to pay creditors.

Income Limits

Individual states maintain income limits for Chapter 7, making this option difficult for many people to qualify for. People who cannot qualify for Chapter 7 can choose Chapter 13. However, Chapter 13 takes much longer to complete because of court-imposed payment plans of three to five years. During the plan some percentage of your income will be paid to creditors, including holders of the medical debt. The exact length of the payment plan depends on your income, and the medical debt collectors and your other creditors may receive only a small percentage of what is owed to them. At the end of the payment period any remaining medical and other unsecured debt will be eliminated, or discharged.

Debt Settlement

Bankruptcy is effective at eliminating medical debt and other debts, but it is the worst solution for your credit. Bankruptcy remains on your credit report for 10 years, making it difficult to obtain new credit at competitive rates. Another debt management strategy, debt settlement, eliminates medical debt and is less damaging to your credit. Debt settlement allows you to resolve medical bills for less than the full balance, with medical debt collectors willing to accept around half the balance. Unlike bankruptcy, you do not have to include all of your debts in debt settlement. Debt settlement can be self-directed, allowing you to choose which medical debts you wish to negotiate.