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What’s the effect of removing medical debt from credit reports?

On Behalf of | Jun 14, 2024 | Bankruptcy

The U.S. is unique among industrialized countries in having a privatized healthcare system. Unfortunately, that can mean unaffordable medical bills – even for those who have health insurance. Medical debt often exceeds every other type of debt facing Americans. It’s also the most likely debt to go to collection. 

In the past few years, the Biden administration has been working to get medical debt excluded from people’s credit reports. The Consumer Financial Protection Bureau (CFPB) has found that 58% of all third-party debt on Americans’ credit reports is medical debt, and that a fifth of all Americans have medical debt that’s gone to collection on their credit reports. That in turn drags down credit scores.

Vice President Kamala Harris noted just a few ways that having this debt on a credit report affects Americans: “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.” 

The three major reporting agencies no longer allow medical debt under $500 on credit reports. However, the CFPB’s proposed rule to remove it from credit reports completely probably won’t be final until later this year.

Medical debt is “not a sign of irresponsibility”

Just recently, the VP said in an interview that the administration is “on track” for getting this debt off credit reports and their credit scores completely. She noted that “it’s not a sign of irresponsibility” that someone can’t pay their medical debt. It’s been found that medical debt isn’t an accurate indication of whether someone is a good credit risk because it’s often beyond their control.

Another issue, according to the director of the CFPB, is that some 80% of medical bills contain erroneous charges. That means the medical debt that’s crushing so many Americans may not even accurately represent what they owe. He notes that “millions of people have spent millions of hours disputing these errors, often while dealing with serious illness.”

While this new rule would be, as VP Harris says, a “game changer,” it doesn’t mean the debt goes away. Medical debt can affect your ability to pay other bills and keep up with everyday expenses. If it’s all becoming overwhelming, it’s worthwhile to consider options for financial relief – including bankruptcy – to determine the best way forward for you and your family.


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