Chapter 7 Bankruptcy / Medical Bills

Are Health Savings Accounts Protected in Chapter 7 Bankruptcy?

Many who have a health savings account (HSA) or a medical savings account (MSA) may wonder whether such funds can be protected in bankruptcy.  In many cases it depends on where you live and if the state offers protection for these types of funds.  This can be an interesting question for debtor as it also depends on whether the funds are considered part of your bankruptcy estate.

When bankruptcy is filed most assets and property belonging to the debtor is considered their bankruptcy estate.  Exemptions provided at the state and federal level can help protect property and assets from being sold to creditors once they are determined to be exempt.  Keep in mind there are some exemptions to the law, meaning every item you own may not be considered part of the bankruptcy estate.  If it is considered exempt, the trustee cannot seize the item and it is considered safe.

When it comes to HSA and MSA funds, you need to determine if they can be exempt if they are in fact considered part of the bankruptcy estate.   Texas is one of few states that offer a specific exemption for health savings accounts.  In some states, it may depend on which exemptions you use in your case.  Some states may allow debtors to use a wildcard exemption to protect such funds if an exemption is not available for this type of asset.  Check with your bankruptcy attorney to learn more information.