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Beware of unsuspected medical debt damaging credit scores

Michigan residents may be interested to learn that failure to pay medical debt can negatively affect their credit reports without them even being aware of the debt. Because medical debt is not like a loan where an individual knows in advance what his or her commitment will be, it is quite possible for an unsuspecting patient to be unaware of separate amounts that are charged. A man in another state recently related his predicament when he applied for a credit card, responding to a zero percent interest offer. The application was declined because of an outstanding medical debt that dated back to 2012.

After suffering a stroke, the man was hospitalized, and his medical insurance paid the bill. He subsequently received a bill from the medical center for room charges. He believed that his insurance carrier had paid the money and that he was not responsible for the additional amount. He failed to settle the bill, causing it to go to collections and negatively affect his credit score. However, he was informed by his insurer that he was obligated to pay a portion of the bill.

Under current laws, medical debt that is reflected on a credit report is seen as any other debt and will remain there for years, even if it is settled. Medical institutions usually understand the financial difficulties of patients and often have programs in place for providing assistance. They may offer payment plans, or, in some instances, a settlement offer at a discounted rate may be accepted.

Individuals in Michigan whose medical and other debt have become overwhelming may want to avoid using their life savings to settle debts. It may be a good idea to explore the various protection options of personal bankruptcy, and obtaining advice to determine whether one is eligible for Chapter 7 bankruptcy may be a good place to start. Under Chapter 7, most unsecured debts, including medical debt, may be discharged. As an alternative, the possibility of an extended payment plan, as offered by Chapter 13 bankruptcy, could afford the person an opportunity of almost immediate financial relief.

Source: toledoblade.com, "Medical debt can lurk on credit reports", Tim Grant, June 18, 2014

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