Medical debt can lead to bankruptcy, but help is here

On Behalf of | Aug 31, 2022 | Debt Relief |

The United States is drowning in medical debt. According to the Kaiser Family Foundation, Americans owe more than $200 billion in medical debt. Four in 10 Americans have some form of medical debt. Half of that debt is on our credit reports, according to the Consumer Financial Protection Bureau. Fortunately there is relief available for New Yorkers.

CFPB findings

Earlier this year, the CFPB released a report on the issues that surround consumer credit reports. The headline from that report was that most medical bills were reported in error, to the detriment of millions.

Equifax, Experian and TransUnion solutions

Rather than waiting for the CFPB to promulgate new rules or congress to pass new laws, the three major credit bureaus (Equifax, Experian and TransUnion) decided to change their medical debt reporting policies. First, they mandated that no medical debt would appear on credit reports until it is at least 12 months old. Second, once that medical debt is paid or settled, it is taken off medical reports. And, finally, next year, all reported medical debt must be $500 or more. Otherwise, it too is deleted.

How does this help those with medical debts?

Normally, unpaid medical debt could hurt your credit for up to 7 years, even if it were paid off. In addition, once it was 30 days old, under the old rules, medical providers could report it to your credit report. This was a double whammy on those with medical debt that took years to recover from, if ever. With these new rules though, millions in the United States will see a bump in their credit scores, along with having more time to fight unreasonable medical bills without affecting credit scores.

Will it help everyone?

Unfortunately, no. If you have medical debt over a year old, then it will still be on your credit bureau. Though, even if you have debt that is not reported yet, these new credit bureau policies do not stop medical debt holders from beginning or continuing collection efforts, including filing lawsuits.

What can I do if I am facing medical debt lawsuits and creditor harassment?

For those New York residents facing medical debt lawsuits and creditor harassment, you may need to speak with an attorney about bankruptcy. Bankruptcy stops all collection efforts, including lawsuits. This pause immediately gives you peace of mind, and then you can collaborate with your attorney on how to achieve your second chance.