Does Medical Debt Go on Your Credit Record?

Medical debt is responsible for thousands of bankruptcies every year. You may believe you have adequate medical insurance but co-pays can add up to more than you can reasonably expect to pay back. Short stays of two or three days in a hospital can cost several hundred thousand dollars. If you are required to pay a co-pay of 20 percent, it can more than wipe out most peoples savings accounts.

Medical Debt

Doctors, hospitals, laboratories and diagnostic facilities report medical debt to the credit reporting agencies. If you have insurance, usually the debt does not appear on your credit report until after the insurance carrier pays its portion of the debt. However, if the insurance company is late making the payment, the total cost can appear on your report. The debt affects your credit score, which drops dramatically if you fail to pay the co-pay when it is due, or you do not negotiate payment terms with your medical creditors.

Credit Reporting Agencies

It is not possible to negotiate with credit reporting agencies. The only thing you can do is to provide them with a consumer statement that becomes a part of your report. The statement should clearly explain the reason you are behind in your payments. Lenders tend to disregard medical debt, or at least give it less weight than your other debts. However, the problem is that if you are very delinquent on your medical debt it has a negative impact on your credit score. Many creditors use your credit score alone to determine whether to extend credit to you.

Collection Agencies

Low credit scores impede your ability to get credit cards, buy a car, refinance your home and even get a job or a reasonable rate on insurance. If you get far enough behind paying your medical payments, the creditor may turn your debt over to a collection agency to attempt to collect payment.

Credit agencies are required to remove delinquent medical debts from your credit report after seven years. If your creditor turns the debt over to a collection agency, the agency attempts to collect for some time. If they are not successful, the creditor gives your file to another collection agency. Each time your creditor turns your file over to a different collection agency, it starts the seven-year clock again. This can continue for a very long time. If you are unable to pay the debt, your score stays low and prevents you from re-establishing credit.

Medical Providers

You should always try to negotiate directly with the medical providers before the credit agencies receive your file. The providers try to work out a reasonable payment plan with you. If the best they can offer is more than you can possibly handle, tell the creditors that you will have to file for bankruptcy protection. Let them know that you are willing to provide them with proof that the payment schedule they offer is more than you can pay. They may negotiate the balance down to a figure you can work with.

This is primarily a negotiating tactic. Filing bankruptcy should be considered only as a last resort. Actually declaring bankruptcy is a high-stress procedure. Of course, you should discuss your situation with an attorney before making any decision regarding bankruptcy.