Michigan Chapter 7 Bankruptcy: Can It Wipe Out Medical Debt After an Injury?

What Chapter 7 Bankruptcy Does

Chapter 7 is a liquidation-based bankruptcy that can discharge many unsecured debts—such as medical bills and credit cards—after a brief process. A trustee reviews your assets to determine whether any non-exempt property can be sold for creditors. Many filers keep all their property by using exemptions. See U.S. Courts, Chapter 7 Basics and 11 U.S.C. § 727.

Are Medical Bills Dischargeable?

Generally, yes. Medical bills are typically unsecured, nonpriority debts that are dischargeable in Chapter 7 unless a specific exception applies (for example, certain fraud-based debts). Medical debts are not listed as priority claims under 11 U.S.C. § 507, and most exceptions to discharge are in 11 U.S.C. § 523.

Eligibility and the Means Test

Most individuals qualify for Chapter 7 through the means test, which compares your income and reasonable expenses to determine whether Chapter 7 is appropriate. See 11 U.S.C. § 707(b)(2). If you do not qualify or have reasons to protect property over time, Chapter 13 may be an alternative.

Michigan Exemptions: Protecting Your Property

Michigan allows debtors to choose either the Michigan state exemptions or the federal bankruptcy exemptions—but you must pick one system for your case. See 11 U.S.C. § 522(b), (d) and MCL 600.5451. Exemptions protect categories of property up to certain values (for example, equity in a home or vehicle, household goods, retirement accounts, and portions of personal injury recoveries). Which system is better depends on your assets, equity, and goals.

Personal Injury Claims and Settlements

If your medical debt stems from an accident, you may have a personal injury claim. When you file Chapter 7, your legal claims (and any settlement rights) generally become property of the bankruptcy estate. See 11 U.S.C. § 541(a). You must disclose pending or potential claims in your bankruptcy paperwork (11 U.S.C. § 521(a)(1)).

Exemptions may protect part of a recovery—under either federal exemptions (e.g., 11 U.S.C. § 522(d)(11)) or Michigan’s exemptions (MCL 600.5451). Non-exempt portions, if any, may be used to pay creditors. Settlements in bankruptcy typically require court approval. See Fed. R. Bankr. P. 9019.

What Happens to Hospital and Collection Lawsuits

Filing a petition triggers the automatic stay, which generally pauses most collection activity, including lawsuits, garnishments, and phone calls. See 11 U.S.C. § 362(a). There are exceptions in 11 U.S.C. § 362(b), and a creditor may ask the court to lift the stay for cause (11 U.S.C. § 362(d)). After a discharge, discharged medical debts are no longer collectible.

In some injury cases, courts may allow a lawsuit to proceed to collect from insurance only, not from you personally, upon appropriate relief from the stay.

Co-pays, Out-of-Network Balances, and Ambulance Bills

These charges are usually treated like other unsecured medical debts and can be discharged if you receive a discharge. If a spouse or other person is jointly liable and does not file, they remain responsible. Note: Chapter 7 has no co-debtor stay—protection for non-filing co-obligors exists in Chapter 13 only. See 11 U.S.C. § 1301.

Secured Debts, Liens, and Medical Debts

Medical debts are typically unsecured. However, valid liens and certain statutory rights (for example, hospital liens and some reimbursement claims) can attach to settlement proceeds and may survive bankruptcy if not avoided. See 11 U.S.C. § 522(c)(2) and Michigan’s Hospital Lien Act (MCL 331.41 et seq.). Discuss lien issues with your attorney.

Choosing Between Chapter 7 and Chapter 13

If you have significant non-exempt assets or higher income, Chapter 13 may allow you to keep property and repay over time, while still addressing medical balances through plan payments. If you qualify for Chapter 7 and have minimal non-exempt assets, it can provide a faster discharge. The best choice depends on your income, property, debts, and any personal injury claim.

How Michigan-Specific Rules Can Affect Your Case

Because Michigan permits choosing between state and federal exemptions, your selection can materially affect what portion of a personal injury recovery you keep, how much home or vehicle equity is protected, and the treatment of other assets. Careful pre-filing planning with a Michigan attorney is important. See 11 U.S.C. § 522 and MCL 600.5451.

Quick Tips for Michigan Filers

Pre-Filing Checklist

Steps to Consider If You’re Facing Medical Debt After an Injury

• Gather bills, explanations of benefits, and collection letters.
• Identify any pending or potential personal injury claims (including Michigan no-fault auto and any third-party liability claims).
• Avoid making large, selective payments to one medical creditor shortly before filing; such transfers may be challenged as preferences. See 11 U.S.C. § 547.
• Consult a bankruptcy attorney about Chapter 7 eligibility, exemption choices, and interaction with an injury case.
• Coordinate with your personal injury attorney; court approval may be required for settlements and fees. See Fed. R. Bankr. P. 9019.

What to Expect in the Process

You complete required credit counseling (11 U.S.C. § 109(h)) and file your petition with schedules and statements (11 U.S.C. § 521(a)). A trustee conducts a short meeting to verify information. If no non-exempt assets are found and no objections are sustained, you typically receive a discharge. If you have a personal injury claim, the trustee may administer the claim and seek court approval of any settlement to ensure exemptions and creditor rights are applied correctly.

When Nondischargeability Might Arise

Most medical debts are dischargeable. Rare issues—such as certain fraud-based debts or willful and malicious injury debts—may be challenged under 11 U.S.C. § 523. Government fines, some taxes, and domestic support obligations have separate treatment and are not medical debts.

Coordinating Bankruptcy With a Personal Injury Case

Tell both attorneys about the other matter. Bankruptcy schedules must disclose your claim and expected recovery (11 U.S.C. § 521(a)). Your personal injury lawyer may need bankruptcy court approval for any settlement and fees (Rule 9019). Proper coordination helps protect exempt portions of a recovery and avoids stay violations.

Frequently Asked Questions

• Will my hospital keep treating me if I file? Emergency screening and stabilizing treatment cannot be refused by hospitals based on ability to pay under federal law (42 U.S.C. § 1395dd). Ongoing, non-emergency care policies vary by provider.
• What about medical credit cards? They are generally treated like other unsecured debts unless incurred by fraud (11 U.S.C. § 523).
• Can I keep my car and home? Many filers do, by applying either Michigan or federal exemptions if equity is within limits and secured payments are kept current. See 11 U.S.C. § 522 and MCL 600.5451.
• Do I have to include all my medical debts? Yes. You must list all creditors in your schedules (11 U.S.C. § 521(a)); you cannot pick and choose.

Talk With a Michigan Bankruptcy Attorney

Your strategy—especially if you have or expect an injury settlement—should be tailored to your assets, income, and goals. We can help you weigh Chapter 7 vs. Chapter 13, choose the right exemption system, and coordinate with any personal injury case. Schedule a consultation.

Authority and Further Reading

• 11 U.S.C. § 362 (automatic stay)
• 11 U.S.C. § 507 (priorities)
• 11 U.S.C. § 523 (exceptions to discharge)
• 11 U.S.C. § 522 (exemptions; state vs. federal)
• 11 U.S.C. § 541 (property of the estate)
• 11 U.S.C. § 521 (debtor’s duties)
• 11 U.S.C. § 707(b)(2) (means test)
• 11 U.S.C. § 1301 (co-debtor stay in Chapter 13)
• 11 U.S.C. § 522(c)(2) (liens on exempt property)
• 11 U.S.C. § 109(h) (credit counseling)
• Fed. R. Bankr. P. 9019 (settlement approval)
• MCL 600.5451 (Michigan bankruptcy exemptions)
• MCL 331.41 et seq. (Michigan Hospital Lien Act)
• United States Courts: Chapter 7 Bankruptcy Basics

Michigan-specific disclaimer: This publication provides general information about Michigan bankruptcy practice and federal bankruptcy law. It is not legal advice and does not create an attorney-client relationship. Consult a licensed Michigan attorney about your specific facts. Contact us.