US Medical Bankruptcies: Causes, Who’s Affected, and Relief

Medical bankruptcy in the US refers to personal bankruptcy filings in which medical bills, illness-related income loss, or both are a major contributing cause, and by the most widely cited research they account for roughly two-thirds of all consumer bankruptcies. About 530,000 people file each year with medical costs as a factor, and around 100 million Americans collectively owe an estimated $220 billion in medical debt.¹² The pattern is largely a US phenomenon among wealthy nations, tied to a health system that leans on private insurance, leaves tens of millions uninsured or underinsured, and exposes even insured families to thousands of dollars in out-of-pocket costs after a serious illness.

How Common It Is

The most cited figures come from Drs. David Himmelstein and Steffie Woolhandler, who surveyed bankruptcy filers over multiple periods. Their 2007 study in the American Journal of Medicine found 62.1% of personal bankruptcies were linked to medical causes. A follow-up covering 2013 through 2016, published in the American Journal of Public Health in 2019, put the figure at 66.5%, with 58.5% of filers pointing to medical expenses and 44.3% citing illness-related work loss.³

Those numbers have been challenged. A 2018 study in the American Economic Review by economists Carlos Dobkin, Amy Finkelstein, Raymond Kluender, and Matthew Notowidigdo tracked bankruptcy rates after hospital admissions using credit report data linked to California hospitalization records. They concluded that hospital admissions triggered fewer than 5% of bankruptcies in their sample, a much smaller role than the survey-based figures suggest.⁴

The disagreement is methodological. Himmelstein and Woolhandler argue that looking only at hospitalizations misses most medical debt: just 18.2% of household out-of-pocket medical spending relates to hospital stays. People also go broke from emergency visits, physical therapy, medications, and lost wages when they or a family member can’t work. They noted the Dobkin study also excluded patients with frequent hospitalizations, who are among the most financially vulnerable. The Dobkin team countered that self-reports are unreliable and subject to “social desirability bias.”⁵ The exchange remains unresolved, though the Himmelstein figures are the ones most often cited in policy discussions.

Who Ends Up in Medical Bankruptcy

Medical debt, the on-ramp to medical bankruptcy, does not land evenly. Census Bureau data from the Survey of Income and Program Participation shows persistent disparities.

Black households report the highest rates of medical debt (27.9%), followed by Hispanic households (21.7%), white non-Hispanic households (17.2%), and Asian households (9.7%).⁶
The South carries the heaviest burden at 22.1% of households, with South Dakota (17.7%), Mississippi (15.2%), and North Carolina (13.4%) near the top. Hawaii (2.3%) and Washington, D.C. (2.7%) are lowest.⁷
People without full-year insurance carry medical debt at nearly double the rate of those continuously covered (30.8% versus 16.2%).⁶
Adults with a disability (13%) and those in fair or poor health are considerably more likely to carry medical debt than healthier adults (6%).⁷
Women report medical debt more often than men (9% versus 7%), a gap partly driven by childbirth costs and lower average incomes.⁷
Debt peaks among working-age adults and drops sharply after 65, when Medicare begins.⁶

Poverty by itself does not predict who carries medical debt. Census data shows 19% of households both above and below the poverty line report some. What differs is severity. Among households in poverty, 11.3% carry medical debt exceeding 20% of annual income, compared with 3% for households above the poverty line.⁶

What Actually Drives It

The causes are rarely a single hospital bill. They are a combination of out-of-pocket costs, insurance gaps, lost income during illness, and the structure of modern coverage.

Out-of-pocket spending is the obvious pressure point. Even with insurance, deductibles, copayments, and coinsurance can run into the thousands for one serious illness. Roughly 35% of medically bankrupt debtors in one study had spent more than $5,000, or more than 10% of annual income, on out-of-pocket bills.⁸ About half of American adults say they could not pay an unexpected $500 medical bill without going into debt.⁹

High-deductible health plans have compounded the exposure. HDHP enrollment among working-age adults roughly doubled between 2010 and 2018, climbing from about 24% to 45% according to Bureau of Labor Statistics figures. Those plans carry minimum deductibles of $1,400 for an individual and $2,800 for a family before coverage begins, with out-of-pocket maximums that can reach $6,900 for an individual or $13,800 for a family. HDHP enrollees are significantly more likely to report being unable to afford needed care, follow-up appointments, and specialist visits than people in traditional plans.¹⁰

Lost income is the other half of the trap. About 40% of people who file medically related bankruptcies lost two or more weeks of wages because of their own or a family member’s illness.⁸ Few Americans carry adequate disability insurance. And losing a job often means losing employer-sponsored coverage at the exact moment care costs spike; COBRA continuation is available but usually unaffordable for someone who just lost a paycheck.

Whether the Affordable Care Act Fixed the Problem

Not really. The ACA expanded coverage to millions through Medicaid expansion, marketplace subsidies, and the provision letting young adults stay on a parent’s plan. Total personal bankruptcy filings dropped roughly 50% between 2010 and 2016, from about 1.5 million to 771,000, and economists credit the ACA alongside the post-recession recovery and the 2005 bankruptcy reform law.¹¹

But the share of bankruptcies with medical causes barely moved. The Himmelstein team found 65.5% of bankruptcies had medical contributors before the ACA’s main coverage provisions took effect in January 2014, and 67.5% after, a statistically insignificant change. States that expanded Medicaid did not show a different medical bankruptcy trend from states that didn’t.³

A University of Colorado Boulder study offered a more nuanced result. Before the ACA, people with intermittent insurance were twice as likely to file for bankruptcy as those continuously insured. After the ACA, that extra risk disappeared, and the share of fully insured individuals rose from 72% to 80%.¹² Coverage reduced individual risk, but rising deductibles, cost-sharing, and prices kept the overall medical share of bankruptcies high.

How Medical Debt Gets Discharged in Bankruptcy

Medical bills are non-priority unsecured debt. They aren’t backed by collateral and sit at the bottom of the repayment order, behind secured debts like mortgages and car loans, and behind priority debts like child support and certain taxes. Medical creditors often receive little or nothing in a bankruptcy case.¹³

There are two main paths. In Chapter 7, nonexempt assets are liquidated and the proceeds distributed to creditors; most medical debt is then discharged, ending personal liability. Filers whose income exceeds their state’s median must pass a means test to qualify. In Chapter 13, the debtor proposes a three-to-five-year repayment plan, paying a trustee who distributes funds. Unsecured creditors, medical providers included, need not be paid in full; the debtor must commit all projected disposable income over the plan period, and medical creditors typically receive a fraction of what’s owed.¹⁴

Filing triggers an automatic stay that immediately stops lawsuits, wage garnishments, and collection calls. If a Chapter 13 debtor becomes unable to complete payments because of circumstances beyond their control, such as a new injury or illness, the court may grant a hardship discharge that ends the plan early.

Charity Care You May Already Qualify For

Before bankruptcy, check whether the hospital that treated you owed you free or reduced-cost care and never told you. Nonprofit hospitals, which are roughly 58% of US community hospitals, receive substantial tax exemptions in exchange for community benefit. Under Section 501(r) of the Internal Revenue Code, added by the ACA, they must maintain written financial assistance policies, publicize them, cap charges for eligible patients, and make reasonable efforts to determine whether a patient qualifies before pursuing aggressive collection.¹⁵¹⁶

Many hospitals fall short of these obligations. Research has found only 44% of hospitals notified patients of their eligibility for financial assistance before attempting to collect. In 2019, nonprofit hospitals reported roughly $2.7 billion in “bad debt” owed by patients who likely qualified for charity care but never received it.¹⁷

The most prominent enforcement action to date is Washington State’s lawsuit against Providence Health and Services. Filed in 2022, the case alleged 14 Providence hospitals trained staff to aggressively pursue payments from patients who qualified for charity care, sending over 54,000 accounts totaling more than $70 million to debt collectors despite knowing those patients were eligible.¹⁸ Providence settled in February 2024 for $157.7 million in refunds and debt forgiveness for nearly 100,000 patients. Ask the hospital’s billing office in writing for its financial assistance policy and application form, and request the retroactive review the policy is supposed to allow.¹⁹

Medical Debt on Your Credit Report

The federal picture shifted in 2025. In January of that year the Consumer Financial Protection Bureau finalized a rule that would have removed medical debt from credit reports entirely, affecting an estimated $49 billion held by 15 million Americans.²⁰

The rule never took effect. Credit industry groups and credit unions sued, and the CFPB under the current administration declined to defend it. On July 11, 2025, Judge Sean Jordan of the Eastern District of Texas vacated the rule, holding that the Fair Credit Reporting Act permits credit reporting agencies to include properly coded medical debt information and that the CFPB had no authority to prohibit what the statute allows.²¹ The court also said state laws banning credit reporting agencies from furnishing reports with coded medical information “would be inconsistent with FCRA and therefore preempted.” Legal analysts have debated whether that statement is a binding holding or non-binding dicta, since state preemption was not the central issue and was not fully briefed.²² In October 2025, the CFPB issued an interpretive rule asserting FCRA preempts state laws regulating the contents of credit reports.²³

Two things still work in your favor. First, the three major credit bureaus, Equifax, Experian, and TransUnion, have voluntarily kept policies adopted in 2022 that exclude medical debt less than one year old, remove paid medical collections, and omit medical debt under $500.²² Second, at least 15 states, including California, Colorado, Connecticut, Illinois, New York, and Virginia, have enacted their own laws restricting or prohibiting medical debt on credit reports, with six states passing new restrictions in 2025 alone.²⁴ Whether those state laws survive the preemption challenge is unsettled.

State Protections That May Apply to You

With federal protections stalled or reversed, states are where consumer safeguards now vary most. As of mid-2025:²⁵

Twenty-one states have set financial assistance standards exceeding the federal floor, and 18 of those extend requirements to for-profit hospitals.
Thirteen states prohibit or cap interest on medical debt. Arizona sets a 3% ceiling.
Three states fully prohibit selling medical debt to third-party buyers.
Twelve states restrict when hospitals or collectors can sue over unpaid bills.
Nineteen states exceed federal wage garnishment protections. New York prohibits wage garnishment for medical debt entirely.
Colorado requires hospitals to offer payment plans, caps monthly payments at 4% of the patient’s gross monthly income, and mandates debt discharge after 36 payments.²⁶

North Carolina launched one of the more aggressive state programs. In July 2024, the state used its Medicaid program to require all 99 acute care hospitals to adopt medical debt relief policies as a condition of receiving enhanced payments under the Healthcare Access and Stabilization Program. Working with the nonprofit Undue Medical Debt, the state erased more than $6.5 billion for over 2.5 million residents by October 2025, with the federal government covering the enhanced hospital payments.²⁷

Nonprofit Debt Erasure

Undue Medical Debt, formerly RIP Medical Debt, buys unpaid medical debt in bulk from hospitals, health systems, and secondary debt markets at pennies on the dollar and forgives it. The model typically turns one donated dollar into roughly $100 in debt relief.²⁸

By June 2025 the organization had abolished $20.3 billion in debt for 13 million people. A single deal with debt trading company Pendrick Capital Partners is retiring $30 billion in debt affecting an estimated 20 million people.²⁹ The nonprofit targets individuals earning below four times the federal poverty level (roughly $63,000 for a single person) or whose medical debt exceeds 5% of income. Recipients are identified automatically. There is no application, and you cannot request coverage of a specific bill; if your debt is included in a portfolio the organization purchases, you receive a letter notifying you it’s been forgiven. By mid-2026, over $40.6 billion had been abolished for more than 27 million people.³⁰

What’s Coming

Health care cost concerns remain Americans’ top financial worry. As of January 2026, 66% of adults reported being worried about affording health care, and 36% said they had skipped or postponed needed care in the preceding year due to cost.⁹

Coverage losses are on the horizon. The One Big Beautiful Bill Act, passed by the House in May 2025 and signed into law in July 2025, contains Medicaid and CHIP provisions that the Congressional Budget Office estimates will increase the number of uninsured Americans by 10.9 million by 2034. The largest driver is new work reporting requirements for Medicaid expansion enrollees, projected to remove 4.8 million people from coverage. The law also reduces retroactive Medicaid eligibility from 90 days to 30, exposing more families to bills from care received before their coverage was confirmed. Overall, the CBO projects the Medicaid and CHIP provisions will cut gross spending by $863 billion over the next decade.³¹

With federal credit reporting protections vacated, the CFPB’s enforcement capacity diminished, and millions of people projected to lose insurance in the coming years, the conditions that produce medical bankruptcy in the US show no sign of easing.

1
Forbes. Increasing Burdens of Medical Debt and Bankruptcy Are Uniquely American
2
The Commonwealth Fund. How States Can Help Curb Rising Medical Debt Related to Federal Coverage Cuts
3
National Library of Medicine. Medical Bankruptcy: Still Common Despite the Affordable Care Act
4
American Economic Association. The Economic Consequences of Hospital Admissions
5
Physicians for a National Health Program. Again, Medical Bankruptcy Is Not a Myth
6
U.S. Census Bureau. Who Had Medical Debt in United States
7
KFF. The Burden of Medical Debt in the United States
8
American Bankruptcy Institute. Medical Bill Debt
9
KFF. Americans’ Challenges With Health Care Costs
10
National Library of Medicine. HDHP Enrollment and Financial Access Barriers
11
Consumer Reports. How the ACA Drove Down Personal Bankruptcy
12
University of Colorado Boulder. Affordable Care Act Lived Up to Promise Buffering Bankruptcy Risk
13
U.S. Courts. Chapter 7 Bankruptcy Basics
14
U.S. Courts. Chapter 13 Bankruptcy Basics
15
KFF. Hospital Charity Care: How It Works and Why It Matters
16
Internal Revenue Service. Financial Assistance Policies (FAPs)
17
Consumer Financial Protection Bureau. Understanding Required Financial Assistance in Medical Care
18
The Seattle Times. Providence Hospitals Sued by WA AG Over Collection Tactics
19
Fierce Healthcare. Providence Agrees to $158M in Refunds, Debt Erasure to Settle Charity Care Billing Investigation
20
Medicare Rights Center. Federal Court Reverses Federal Medical Debt Protections
21
U.S. Courts. Cornerstone Credit Union League v. Consumer Financial Protection Bureau
22
National Consumer Law Center. Latest on Keeping Medical Debt Out of Credit Reports
23
Federal Register. Fair Credit Reporting Act Preemption of State Laws
24
The Commonwealth Fund. Federal Protections Stall, States Move to Front Lines to Alleviate Medical Debt
25
The Commonwealth Fund. State Protections Against Medical Debt: A Look at Policies Across the US
26
Healthcare Value Hub. Colorado: Prevent Medical Debt
27
North Carolina Department of Health and Human Services. Governor Stein, NCDHHS Announce More Than $6.5 Billion in Medical Debt Erased in North Carolina
28
Undue Medical Debt. Undue Medical Debt Announces $20 Billion in Medical Debt Erased
29
KFF Health News. Undue Medical Debt Blockbuster Deal Relief Billions
30
Undue Medical Debt. Our Outcomes
31
Georgetown University Center for Children and Families. Medicaid and CHIP Cuts in the House-Passed Reconciliation Bill Explained