Medical Debt Forgiveness Programs: Federal, State, and Nonprofit Options

Over $220 billion in medical debt burdens American families, but billions of dollars in forgiveness programs exist — from federal initiatives to state programs to nonprofits that buy and cancel debt for pennies on the dollar. Whether you owe $500 or $50,000, there may be a program that can help eliminate your medical debt entirely. This guide covers every major pathway to medical debt forgiveness available today.

Key fact: A KFF analysis found that 25-50% of medical debt in collections is held by patients who would have qualified for charity care — meaning their bills could have been forgiven entirely, but they never applied. If you have medical debt, read every section of this guide before paying another dollar.

Federal Medical Debt Relief

The federal government has taken several significant actions to address the medical debt crisis. While no single federal program eliminates all medical debt, these initiatives create multiple pathways to relief.

American Rescue Plan (ARP) Funding

The American Rescue Plan allocated $350 billion in State and Local Fiscal Recovery Funds (SLFRF), and the Treasury Department explicitly approved using these funds for medical debt relief. States and local governments have used approximately $7.5 billion of ARP funds to purchase and cancel medical debt for their residents — often partnering with nonprofits like Undue Medical Debt to buy debt portfolios at a fraction of face value.

CFPB Enforcement Actions

The Consumer Financial Protection Bureau (CFPB) has taken enforcement actions against hospitals and collectors violating existing consumer protection laws. While a proposed blanket ban on medical debt credit reporting was vacated, the CFPB continues to enforce rules requiring accurate reporting and proper debt validation. Medical debts under $500 and paid medical debts can no longer appear on credit reports under current credit bureau policies.

For more on how medical debt affects your credit, see our guide on medical bills and your credit score.

IRS 501(r) Requirements

This is one of the most powerful and underused tools for medical debt forgiveness. Under IRS Section 501(r), all nonprofit hospitals — which make up about 60% of U.S. hospitals — must provide financial assistance programs or risk losing their tax-exempt status. This means they are legally required to have charity care programs that can forgive your bills partially or completely.

Important tax note: Medical debt forgiven after 2021 is generally not taxable income, thanks to provisions in the Consolidated Appropriations Act. This applies to debt forgiven through charity care programs, state relief programs, and nonprofit cancellation. You will not owe taxes on forgiven medical debt in most circumstances.

State Medical Debt Relief Programs

This is where the largest-scale debt cancellation is happening right now. States and local governments across the country have used ARP funds and their own budgets to purchase and cancel billions in medical debt. Many of these programs require no application — if your debt is in a purchased portfolio, you simply receive a letter saying your debt has been eliminated.

Major State Medical Debt Relief Programs

North Carolina: $6.5 billion in medical debt canceled through ARP funds — the largest state program in the country
New York: $2.7 billion eliminated through state partnership programs
Arizona: $2.4 billion in medical debt relief through Maricopa County and statewide programs
New Jersey: $1.4 billion in medical debt relief through state initiative
Illinois: $1 billion in medical debt canceled via partnership with Undue Medical Debt
California: Multiple county programs totaling over $1 billion in canceled debt
Ohio: $800 million canceled through multiple county programs
Oregon: $440 million eliminated through state partnership with Dollar For
Colorado: $228 million in medical debt abolished
Connecticut: Over 100,000 households had medical debt eliminated

Check your state: These programs vary in eligibility and timing. New programs are being announced regularly as ARP funds continue to be distributed. Check your state's health department or attorney general's website for current programs. You can also explore our state-specific charity care guides for California, Texas, New York, and Florida.

Nonprofit Organizations That Cancel Medical Debt

Several nonprofit organizations have made medical debt forgiveness their mission. Together, they have canceled tens of billions of dollars in medical debt.

Undue Medical Debt (formerly RIP Medical Debt)

Undue Medical Debt is the largest medical debt forgiveness nonprofit in the country. They have abolished over $14 billion in medical debt since inception. Their model is straightforward: they purchase debt portfolios from hospitals and collectors at pennies on the dollar, then forgive the debt entirely.

Recipients don't need to apply. If your debt is in a portfolio that Undue Medical Debt purchases, you receive a letter in the mail notifying you that your debt has been eliminated — no strings attached, no tax consequences. Undue Medical Debt partners with state and local governments to target debt relief to communities that need it most.

Dollar For

Dollar For takes a different approach: rather than buying debt, they help patients apply for hospital charity care programs — even after bills have gone to collections. Their volunteers guide you through the entire charity care application process for free.

Dollar For has helped cancel over $75 million in medical debt. Their key advantage is that they can help you even if your debt has already been sent to collections, and even if you've been told you don't qualify. Many hospitals deny charity care applications due to incomplete paperwork, and Dollar For knows exactly what each hospital requires.

Patient Advocate Foundation

The Patient Advocate Foundation provides free case management for patients with chronic, life-threatening, or debilitating diseases. Their services include bill negotiation, copay assistance, insurance navigation, and a financial aid fund for eligible patients. You can reach them at 1-800-532-5274.

For more organizations that can help, see our comprehensive guide to free medical bill advocacy resources.

HealthWell Foundation

The HealthWell Foundation provides copay and premium assistance for underinsured patients with specific diseases and conditions. While not a debt forgiveness program per se, their assistance can prevent medical debt from accumulating in the first place and help patients afford ongoing treatment.

Hospital Charity Care: Your Biggest Opportunity

Hospital charity care is the single most underused medical debt forgiveness resource in America. Federal law (IRS Section 501(r)) requires all nonprofit hospitals to offer financial assistance programs. Most hospitals offer free care to patients below 200% of the Federal Poverty Level (FPL), and many offer reduced-cost care up to 400% FPL.

2026 Charity Care Income Thresholds

Free care (below 200% FPL): $31,200 for an individual, $64,400 for a family of 4
Reduced-cost care (below 400% FPL): $62,400 for an individual, $128,800 for a family of 4
Retroactive applications: You can typically apply up to 240 days after the first billing statement
Collections debt: You can apply for charity care even after your debt has gone to collections

The most startling statistic in medical debt: KFF research estimates that 25-50% of all medical debt in collections is held by patients who would have qualified for charity care but never applied. This means billions of dollars in debt could be erased if patients simply knew about and applied for these programs.

Learn more about eligibility in our charity care eligibility guide and your hospital financial assistance rights.

How to Check If Your Debt Qualifies for Forgiveness

Follow these steps to determine which forgiveness pathways are available to you:

Check if the hospital is nonprofit. Use the IRS Tax Exempt Organization Search to look up the hospital. If it's a 501(c)(3) organization, it is legally required to offer financial assistance.
Request the hospital's Financial Assistance Policy (FAP). Federal law requires nonprofit hospitals to make this document publicly available. Call the billing department and ask for it, or check the hospital's website. The FAP spells out exactly who qualifies and what documentation is needed.
Calculate your income as a percentage of the Federal Poverty Level. Compare your household income and size against the FPL guidelines. If you're below 200% FPL, you very likely qualify for free care. If you're below 400% FPL, you may qualify for reduced-cost care.
Apply for charity care — even if your debt is in collections. Most hospitals accept retroactive charity care applications. The fact that your debt was sent to collections does not disqualify you. If approved, the hospital must recall the debt from the collection agency.
Check your state for active debt relief programs. Search your state's health department or attorney general website for medical debt relief initiatives. Many states have ongoing programs funded by ARP or state budgets.
Contact Dollar For for free help. If the application process feels overwhelming, Dollar For volunteers will guide you through it at no cost.

Tax Implications of Medical Debt Forgiveness

Understanding the tax consequences of debt forgiveness is critical. The good news is that most forms of medical debt forgiveness are tax-free.

Tax Rules for Forgiven Medical Debt:

Charity care forgiveness: NOT taxable — this is a discount, not income
State relief programs: Generally NOT taxable under current IRS guidance
Nonprofit cancellation (Undue Medical Debt, etc.): NOT taxable — treated as a gift
Negotiated settlements: MAY be taxable if over $600 — you may receive a 1099-C form
Insolvency exception: If your total debts exceeded your total assets at the time of forgiveness, you can exclude the forgiven amount from income using IRS Form 982

For more on the tax side of medical expenses, see our guide on medical bill tax deductions.

Debt Forgiveness vs. Debt Settlement

These are two very different things, and understanding the distinction matters for your finances and your credit.

Forgiveness vs. Settlement: Key Differences

Forgiveness: Your debt is completely eliminated with no payment required. This happens through charity care, nonprofit programs (Undue Medical Debt), and state relief initiatives. Forgiveness does not negatively impact your credit report.
Settlement: You negotiate to pay a reduced amount — typically 25-50% of the original balance. Settlement may appear as "settled for less than full amount" on your credit report, though current medical debt credit reporting rules limit this impact.

Always pursue forgiveness first. If you don't qualify for full forgiveness, settlement is still a valuable tool. Learn more in our guides on how to lower your medical bills and dealing with medical bills in collections.

What If You Don't Qualify for Forgiveness?

If your income is too high for charity care and your state doesn't have an active relief program, you still have options:

Negotiate your bill directly. Hospitals often accept 40-60% of the original amount as payment in full, especially for uninsured patients. Ask for the "self-pay" or "cash-pay" rate.
Request an itemized bill and check for errors. Medical billing errors affect up to 80% of hospital bills. Finding and disputing errors can significantly reduce what you owe.
Set up an interest-free payment plan. Most hospitals are required to offer reasonable payment plans. Many are interest-free if you negotiate upfront.
Appeal your insurance company's denial. If your insurance denied coverage, you have the right to appeal the decision.
Know your rights if sued. If a hospital or collector threatens legal action, understand what happens when you're sued for medical bills and the statute of limitations in your state.

Frequently Asked Questions

Is medical debt forgiveness really free?

Yes. Programs through Undue Medical Debt, Dollar For, state relief programs, and hospital charity care cost you nothing. These organizations are funded by donations, government grants, and in the case of hospital charity care, the hospital absorbs the cost as part of its tax-exempt obligations. You should never pay a company that claims it can get your medical debt forgiven for a fee — legitimate forgiveness programs are free.

Will forgiven medical debt affect my taxes?

In most cases, no. Medical debt forgiven through charity care, state relief programs, and nonprofit cancellation is not taxable income. Debt reduced through negotiation or settlement may be taxable if the forgiven amount exceeds $600, but the insolvency exception (IRS Form 982) may apply if your debts exceeded your assets.

Can I get debt forgiven even if it's in collections?

Yes. You can apply for hospital charity care even after your bill has been sent to collections. If approved, the hospital must recall the debt from the collection agency and apply the financial assistance. Dollar For specializes in helping patients apply for charity care on debts already in collections. Additionally, state relief programs and Undue Medical Debt specifically purchase debt that is in collections.

How do I know if my hospital is nonprofit?

Use the IRS Tax Exempt Organization Search tool. Search for the hospital's legal name. If it appears as a 501(c)(3) organization, it is a nonprofit hospital and is legally required to offer financial assistance. About 60% of U.S. hospitals are nonprofit.

What if I don't qualify for any forgiveness program?

Even without forgiveness, you can significantly reduce your medical bills. Request an itemized bill and use proven strategies to lower your bill. Negotiate a cash-pay discount (typically 30-60% off). Set up an interest-free payment plan. And always check for billing errors — uploading your bill to Health Bill Central can help identify overcharges you might miss.

Can I apply for charity care after I've already made payments?

Yes. Many hospitals will apply charity care retroactively and refund payments you've already made if you qualify. Check the hospital's Financial Assistance Policy for their specific retroactive application window — federal guidelines allow up to 240 days from the first post-discharge billing statement, and some hospitals extend this further.

Your Action Plan: Getting Medical Debt Forgiven

Check if your hospital is nonprofit using the IRS Tax Exempt Organization Search — if it is, apply for charity care immediately
Calculate your income vs. FPL — if you're below 200% FPL ($31,200 individual / $64,400 family of 4), you likely qualify for free care; below 400% FPL for reduced-cost care
Search for your state's debt relief program — check your state attorney general and health department websites for active medical debt cancellation programs
Contact Dollar For at dollarfor.org for free, volunteer-guided help with charity care applications
Upload your bill to Health Bill Central for a free error analysis — billing errors are found in up to 80% of hospital bills, and fixing them can reduce your balance before you even apply for forgiveness

Medical debt forgiveness is real, it's free, and millions of Americans qualify. Don't let a medical bill you can't afford go to collections or damage your financial future when programs exist to help. Start by uploading your bill to Health Bill Central — our AI-powered analysis can identify billing errors, check your charity care eligibility, and help you build the strongest possible case for debt forgiveness.

Content is for informational purposes only and does not constitute financial, legal, or medical advice. Consult a qualified professional for advice specific to your situation.