When a Medical Practice Faces Financial Crisis
Running a medical practice in Florida is demanding. Overhead is high. Insurance reimbursements can drop without warning. Staffing costs rise every year. Equipment financing adds up fast. When cash flow breaks down, the financial pressure on a practice and its owners can become overwhelming.
Many physicians and other licensed professionals feel alone in this situation. They are not. The Bankruptcy Code offers several structured paths for both the practice itself and the individual owner. Understanding which path fits which situation is the first step toward making an informed decision.
Can a Medical Practice File Bankruptcy?
Yes. A medical practice organized as a professional corporation (PC), professional association (PA), or limited liability company (LLC) is a legal entity. It can file for bankruptcy protection in its own name.
However, there is an important distinction. A corporation or LLC that files Chapter 7 does not receive a discharge of debt the way an individual does. The business liquidates, and remaining debts are simply left behind because the entity ceases to exist. This is different from a personal Chapter 7, where the individual debtor can receive a discharge.
For a medical practice that wants to reorganize and keep operating, liquidation is usually not the goal. That is where Chapter 11, and specifically Subchapter V, becomes relevant.
Subchapter V of Chapter 11: A Streamlined Path for Small Practices
Subchapter V is a section of Chapter 11 designed to make reorganization faster and less costly for small businesses. Congress created it to reduce the barriers that made traditional Chapter 11 prohibitively expensive for smaller operations.
Under Subchapter V, a qualifying small business debtor can propose a reorganization plan without the same complex requirements that apply in a standard Chapter 11 case. A trustee is appointed to assist, but the business owner generally keeps control of daily operations. There is no creditors' committee in most Subchapter V cases, which reduces administrative costs significantly.
To qualify, a debtor must meet a debt limit defined by the Bankruptcy Code. Congress has adjusted this limit over the years, so it is important to verify the current threshold rather than rely on any fixed number. An attorney can confirm whether a practice qualifies based on its total debt load at the time of filing.
For a solo physician practice or a small group practice in Miami, Fort Lauderdale, or the West Palm Beach area, Subchapter V may offer a realistic way to restructure debt while keeping the practice open and patients served.
Chapter 7 for the Individual Physician
Even if the practice itself winds down or does not file, the physician who personally signed on business debt may still face collection pressure. A physician is a person, and individuals can file Chapter 7.
Chapter 7 is a liquidation bankruptcy for individuals. A court-appointed trustee reviews the filer's assets and liabilities. Most filers retain property that falls within their state's exemptions. Florida has its own exemption system, which is worth understanding.
Florida exemptions that may be relevant to a physician include:
- Homestead exemption: Florida protects a home on up to half an acre inside a municipality, or up to 160 acres outside one. There are ownership-period rules that can affect the cap on the exemption for people who moved to Florida relatively recently.
- Retirement accounts: 401(k) plans, IRAs, and similar qualified retirement accounts are generally protected under Florida law and federal law.
- Vehicle equity: Up to $1,000 in vehicle equity is exempt. Physicians often have auto loans where the loan balance exceeds the vehicle value, so this may be a non-issue.
- Personal property: Florida allows a $1,000 personal property exemption, with a larger wildcard available to filers who do not claim a homestead exemption.
- Head-of-family wages: A portion of wages earned by the head of a family may be exempt from garnishment under Florida law.
Chapter 7 also requires passing a means test. The test compares household income to the Florida median income for a household of the same size. Physicians typically earn above median income, so the means test calculation matters. If income is above the median, additional steps in the means test look at allowable expenses and disposable income. The outcome of that calculation determines eligibility.
Business debts signed personally, such as equipment loans or office lease obligations where the physician co-signed, are personal debts. Many filers find that Chapter 7 can address these alongside any personal debts when the individual qualifies.
Chapter 13 for the Individual Physician
Chapter 13 allows an individual with regular income to propose a repayment plan lasting three to five years. At the end of the plan, remaining eligible debts may be discharged. The Bankruptcy Code allows individuals who have personal liability on business debt to include those obligations in a Chapter 13 plan.
Chapter 13 has debt limits for eligibility. Like the Subchapter V threshold, these limits change. Confirming current figures with an attorney is necessary before assuming Chapter 13 is available.
One advantage of Chapter 13 is that it can help a filer catch up on mortgage arrears while keeping the home. For a physician who also has home equity tied up in a Florida homestead, this can matter a great deal.
The Automatic Stay and What It Means for a Practice
When any bankruptcy case is filed, an automatic stay goes into effect under 11 U.S.C. 362. Filing the case triggers the stay. It generally pauses most collection actions, lawsuits, foreclosures, and garnishments while the case is open. This includes actions by medical equipment lenders, landlords, and most other creditors.
There are exceptions. The automatic stay does not stop every type of proceeding, and repeat filers may face limits on how long the stay remains in effect. For a fuller explanation of how the stay works, see our post on the automatic stay explained.
Required Steps Before and After Filing
Bankruptcy has required steps for individual filers. These apply whether the physician files Chapter 7 or Chapter 13:
- Credit counseling: An approved agency must provide credit counseling before the case is filed. This is a federal requirement.
- 341 meeting of creditors: About a month after filing, the debtor attends a meeting where the trustee and any creditors may ask questions. In the Southern District of Florida, this meeting is routinely held by video or phone. Learn more in our guide to the 341 meeting of creditors in Florida.
- Debtor education course: Before a discharge is entered, the filer must complete an approved financial management course.
Debts That Survive Discharge
Not every debt goes away after a bankruptcy discharge. Some debts generally survive regardless of which chapter is filed. These include most student loans, recent income taxes, domestic support obligations such as child support or alimony, and court-imposed fines. Physicians with student loan debt from medical school should understand this limitation going in.
Past results do not predict future outcomes.
Understanding Fees and Costs
Filing bankruptcy involves court costs, filing fees, and attorney fees. Attorney fees, court costs and filing fees are explained in writing before any case begins. For general information about what filing costs look like, our post on bankruptcy filing fees and waivers covers the basics.
The Professional License Question
Many physicians worry that filing bankruptcy will affect their medical license. Florida licensing boards do not automatically revoke a license because of a bankruptcy filing. Federal law generally prohibits government agencies from discriminating against bankruptcy filers solely because of the filing. That said, licensing boards review financial matters through their own processes, and professional obligations vary. Speaking with both a bankruptcy attorney and a licensing attorney before filing is a reasonable step for any licensed professional.
Taking Stock of the Options
Financial stress does not have to mean the end of a medical career or a practice. The Bankruptcy Code provides structured options at the business level through Subchapter V, and at the individual level through Chapter 7 and Chapter 13. Understanding each path, the exemptions available under Florida law, and the required steps before and after filing gives physicians the information they need to make clear-headed decisions about their next move.
Wondering if a fresh start fits your situation?
Attorney fees, court costs and filing fees are explained in writing before any case begins. Take the free 2-minute case review or call Recalde Law Firm at (305) 792-9100.