Medical debt and credit reports

On Behalf of | Oct 1, 2023 | Estate Planning

Medical debt can be a severe problem that upends the lives of many Michigan residents. Some debtors might find their obligations to healthcare providers surprising when their insurance does not cover a substantial amount of care and services rendered. Others might have no insurance, which forces them to assume the financial responsibilities to pay all bills. While a new proposed rule from the Biden administration may only solve some things, it could alleviate some problems.

A proposed rule about credit reports and medical debt

Medical debt is a substantial problem that affects upwards of 100 million individuals. The Biden administration recognizes the ripple effect problems associated with medical debt and is proposing new federal regulations to help those struggling with their obligations. The rule would remove medical debt from a person’s credit report, which, in turn, eliminates the negative effect of the debt on a credit rating.

Poor credit scores could adversely impact someone’s ability to procure a loan or receive favorable terms. Credit scores also affect insurance premiums and are often part of tenant screenings by landlords. While the regulation changes may be valuable, they would not remove the requirement to repay any medical debts.

Dealing with the medical debt

A debtor may struggle with repaying medical debt for years before realizing the situation is untenable. After repeated attempts to work a budget to pay down the debt, the debtor may seek consumer bankruptcy protections. The debtor may lack the income or income potential to solve their situation any other way.

Wage earners may devise a payment plan under the rules for Chapter 13 bankruptcy, where some debt faces discharge. Those who pass the necessary means test could file for Chapter 7 liquidation bankruptcy. Both options may provide a path to a fresh financial start.