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How removing medical debt from credit reports help Americans

On Behalf of | Jul 24, 2024 | Bankruptcy Law

Did you know that over half of the third-party debt on Americans’ credit reports has long been medical debt? Of course, once debt appears on a credit report, that person’s credit score can start to plummet. That affects not only whether they can qualify for needed credit, but other aspects of their lives, as we’ll discuss here. Further, because medical debt is largely beyond people’s control – unlike other types of consumer debt – it’s not a good reflection of a person’s creditworthiness. 

The Biden administration has already taken steps to get much of that medical debt off credit reports – and there are more changes planned. The three leading credit reporting agencies no longer report medical debt that’s less than $500. When a proposed rule by the Consumer Financial Protection Bureau (CFPB) becomes final, no medical debt will show up on credit reports. 

The rule is “on track,” according to Vice President Kamala Harris, to be final by the end of this year. That means it can no longer drag down credit scores, which, as the VP notes, “determine whether a person can buy a home, whether they can buy a car, rent an apartment or own a small business.”

Most medical bills are inaccurate

Beyond not being a reliable indicator of whether a person is a good credit risk, including medical debt on credit reports is problematic because so many medical bills (about 80%, according to the CFPB) contain charges that are incorrect or shouldn’t be there at all. Since most people would need a medical dictionary to decipher what most of the charges on a medical bill are even for, they often don’t get disputed. Further, as the CFPB director notes, people are in many cases getting these bills at a time when they or a loved one is “dealing with serious illness.”

While these changes are certainly good news for the Americans dealing with medical debt, they don’t diminish the debt itself. If your medical debt is overwhelming and affecting your ability to pay your other bills, find out what kind of debt relief options – including bankruptcy – are available.

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