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Medical debt arrears may negatively impact credit scores

Michigan consumers may be aware that research suggests that one in every three Americans is having difficulties in paying medical debts. With medical debt in collections affecting credit scores, many consumers find it almost impossible to secure loans, or credit for buying large items such as cars. Even once medical debt is settled, if it was in collections, it still has a negative effect on an individual’s credit score.

Medical expenses are often not anticipated, and individuals cannot save up for emergency procedures, heart attacks or vehicle accident injuries. There is often a significant time period between the date when the medical debt was incurred, and the date when insurance payments are submitted. Medical debt is often handed over to collections within this time-lapse, and unfairly reflects on an individual’s credit score.

The Consumer Financial Protection Bureau conducted a study to determine the payment patterns of five million consumers over the period between 2011 and 2013. The results of the study showed that consumers with medical debt typically have similar payment patterns to those consumers with high credit scores. Since it is not currently clear when Congress might act upon requests to pass legislation to exclude medical debt collections from credit scores, it is hoped by many that credit rating agencies will take action themselves.

Consumers in Michigan who find themselves in a position of overwhelming medical debt may wish to consider the protection of personal bankruptcy. Bankruptcy may be the perfect way to resolve unmanageable debt. Consumers may see all their unsecured debts discharged through Chapter 7 bankruptcy while Chapter 13 may offer an opportunity to restructure debts. This is done by presenting an extended payment plan -- typically three to five years -- to the court for approval. Filing for bankruptcy can often help consumers get rid of debt and start building a fresh financially stable future.

Source: The Washington Post, "Why medical debt is killing your credit score", Danielle Douglas Wonkblog, May 21, 2014

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