Question: When can an $11 medical bill mean bankruptcy?
Answer: When the bill is issued in error and the resultant collection proceedings drop your credit score to the point where you can’t get a credit card to help pay the bills, apply for a car loan that helps you get to work, or even refinance your mortgage to a more affordable rate.
Think it can’t happen to you? Think again.
In a recent article written by The Wall Street Journal, entitled “Hidden Medical Debt Trips Up Homeowners,” the prestigious paper covers several instances among millions of others in which miniscule past due medical bills had been turned over to collection agencies, resulting in a more than 50 point drop in the debtors’ credit scores.
“Two erroneous $11 doctor bills stopped Jeanne White from refinancing her home. The 49-year-old resident of Colleyville, Texas, pays 7% on the mortgage for her three-bedroom house. In October, she says, she was shocked to learn that the two medical bills, which had been turned over to a collection agency, had caused her credit score to fall to 680 from 757—making refinancing far too expensive. ‘I was told I'd have to pay $14,000 in closing costs to get a 5.5% interest rate,’ Ms. White says, substantially more than she would have paid with a higher credit score. When Ms. White, a retired sales manager, contacted the doctor's office, she found out the bills had been issued in error. Ms. White's case is hardly an isolated one. Otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit, say mortgage bankers and real-estate agents."
What’s most troubling is that an innocent American, just like you, is often paying the price for a the health care provider’s lack of due diligence. In most of these situations, these “well-qualified borrowers” never even knew about their unpaid medical debts. You may have been ill or injured in an accident and, even in a single visit to the hospital, need the assistance of one or, in most cases, more than one doctor, pharmacist, surgeon, anesthesiologist, therapist, chiropractor, etc. In the resulting confusion, a bill may fall between the cracks and go unpaid or unsent. Unfortunately, in many cases, the health care institutions will simply turn over the medical debts to a waiting collection agency that then communicates the delinquency to credit reporting agencies. The result? You get dinged for erroneous bills that can mean lower credit, more debt, and fewer options other than seeking the safe havens of bankruptcy—all because of a single clerical error or miscue in the mailing.
That’s right. Your negative credit can cause a domino effect whereby even a small late payment on an account can result in a dramatic lowering of your credit score. And these types of errors are happening more often than you think. According to The Wall Street Journal, “Some 14 million Americans have errors on their credit report because of medical collections, according to the Commonwealth Fund, a Washington-based nonprofit focused on health-care research. These routinely small-balance blemishes, which can go unnoticed for years, can be a death knell for refinancing because they can cause outright refusals—or make closing costs so high that borrowers opt not to refinance at all.”
The message is clear: (1) study your credit reports regularly; and (2) challenge any disparities—even the smallest discrepancy. A little due diligence on your part now can head off many credit headaches later.
And if you find yourself in a situation where medical bills or low credit is affecting your ability to live, it’s best to consult with a qualified bankruptcy attorney. The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation for those times when negative debt is taking its toll. Just call toll free to 1-888-234-4181, or make an appointment online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.