Don't let medical debts ruin your credit
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Medical bills are not a thing of the past despite the Affordable Care Act’s promises of lower costs for health care. Even for those that have insurance, non-covered services, copays, deductibles and coinsurance can pile up and leave you owing more money than you can afford to pay. To make matters worse, medical debt collectors have more latitude than other types of collection agencies and can quickly ruin your credit without you even knowing the hit is coming. Here’s what you need to know.
Medical debt collectors and “debt parking”
Debt parking is a tool in the medical debt collector’s arsenal that can wreck your FICO score. Debt parking is when a collection agency places a collection’s entry on your credit report without warning you. Typically, you won’t know it’s there unless you pull a credit report and notice it there or are turned down for a new credit application. And by them, it’s too late. Collection accounts are like a plague on your credit report.
How medical agencies get away with debt parking
The Fair Credit Reporting Act (FCRA) requires banks, lenders and most types of creditors to notify consumers that they intend to place negative information on their credit report. But these FCRA guidelines don’t apply to medical debts because physicians and medical providers are not technically “creditors.” They are in the business of providing health services, not of providing credit or extending financing. This is the loophole debt collectors use to park debt.
The dangers of collections entries on your credit report
Here is what’s so bad about collection entries. When you don’t pay a bill, the creditor usually notes this on your account with them as a late payment that lowers your credit score. Then, when they hand the unpaid bill over to a collection agency, the debt collector can make a second negative entry on your credit report. That means you can end up with double the negative impact to your credit score from just one account.
How can you get medical collection accounts off your credit?
This is where things get tricky. Even if you pay off the past due bill, both the collection account and original account stay on your credit report. And paying the collection account doesn’t help – satisfying a collection account does not lower the impact, and it will keep dragging your score down. If you do receive notice that a collection notice will be entered on your credit, your best shot is to negotiate with the original account holder (the medical practice) and work out a payment arrangement to stop this.
Bankruptcy wipes out medical debts
For those overwhelmed with medical debt, Chapter 7 bankruptcy can wipe the slate clean before it gets to the collections stage. We see this most often with someone who has suffered a debilitating accident or illness and who either didn’t have health insurance or who had coverage was inadequate to deal with the health crisis. Because medical debt is unsecured, Chapter 7 bankruptcy wipes it all out the moment you file, and you won’t have to pay the debts at all.
Chapter 13 bankruptcy is another option where you get more time to catch up on past due balances on debt such as your mortgage or car loan and still wipe out most unsecured debts, so you only have to pay a small portion of these bills. Either option can give you the financial fresh start you deserve.
Call +1-919-646-2654 to reach the Law Offices of John T. Orcutt to schedule a free North Carolina bankruptcy consultation at one of our offices in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.