What Happens If You Don’t Pay Medical Bills?

Medical bills can become a significant financial burden when left unpaid. Medical debt arises from healthcare services, treatments, or procedures not fully covered by insurance or paid for by the individual. This financial obligation can stem from various sources, including emergency room visits, specialized treatments, or routine care where out-of-pocket expenses accumulate.

Impact on Your Credit Score

Unpaid medical bills can significantly affect a person’s credit report and credit score. Healthcare providers generally do not report directly to credit bureaus; instead, an unpaid medical bill impacts credit only after it has been sent to a collection agency. A waiting period, commonly 180 days, often applies before a medical account in collections appears on a credit report, allowing time for insurance processing or payment arrangements.

Once a medical debt goes to collections and is reported, it can remain on a credit report for up to seven years from the original delinquency date, even if subsequently paid. However, newer credit scoring models, such as FICO 9, FICO 10, VantageScore 3.0, and VantageScore 4.0, treat medical collection accounts differently from other types of debt. These updated models may give less weight to medical collections or even ignore paid medical collection accounts entirely. Older scoring models, still in use by some lenders, may not differentiate medical debt and can penalize it more severely.

Recent changes in reporting practices have created a distinction between paid and unpaid medical debt on credit reports. As of July 1, 2022, paid medical collection accounts are no longer included on consumer credit reports. As of March 30, 2023, medical collection debt under $500 is also excluded from credit reports. These changes aim to mitigate the negative impact of medical debt on consumers, recognizing that it often arises from unexpected circumstances rather than financial mismanagement.

Medical Debt and Collection Agencies

If a medical bill remains unpaid for an extended period, the healthcare provider may eventually transfer the debt to a third-party collection agency. This typically occurs after several billing statements and attempts at direct communication from the provider, often around 90 to 180 days past the original due date. Once the debt is with a collection agency, the agency will attempt to recover the outstanding amount on behalf of the original creditor. These agencies primarily communicate through written notices and telephone calls, informing the consumer of the debt and demanding payment.

Collection agencies are governed by federal regulations, primarily the Fair Debt Collection Practices Act (FDCPA), which outlines permissible collection efforts. This act prohibits abusive, deceptive, and unfair debt collection practices. For instance, collectors cannot harass consumers with repeated phone calls, use profane language, or threaten actions they cannot legally take, such as arrest or imprisonment. They are also prohibited from making false statements about the amount owed or falsely claiming to be attorneys or government representatives.

The FDCPA also establishes consumer rights regarding debt verification. Upon initial contact from a collection agency, consumers have the right to request verification of the debt within 30 days. This request, made in writing, requires the collection agency to provide documentation proving the debt is legitimate and that the consumer owes it. During the period while the debt is being verified, the collection agency must cease all collection efforts. If the agency cannot provide sufficient verification, they cannot continue to pursue the debt.

Potential Legal Actions

Failure to pay medical bills can escalate to severe legal consequences, especially for substantial debt. Healthcare providers or collection agencies may choose to file a lawsuit against the debtor to recover the outstanding amount. This legal action is typically a last resort, pursued after other collection efforts have failed and often for larger debt amounts that justify the legal costs involved. The decision to file a lawsuit can depend on various factors, including the amount of debt, the consumer’s financial situation, and the specific laws governing debt collection in the jurisdiction.

If a lawsuit is filed and the court rules in favor of the creditor, a judgment is obtained against the debtor. A judgment is a legally binding court order recognizing the debt and the creditor’s right to collect it. This judgment becomes a matter of public record and can appear on credit reports, potentially impacting the individual’s ability to obtain future credit or loans. Once a judgment is secured, the creditor gains powerful tools to enforce collection.

Post-judgment actions can include wage garnishment, where a portion of the debtor’s earnings is withheld by their employer and sent to the creditor. Federal law limits wage garnishment to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. Another possible action is a bank account levy, which allows the creditor to seize funds directly from the debtor’s bank accounts. Additionally, a property lien can be placed on real estate owned by the debtor, creating a claim against the property that must be satisfied before it can be sold or refinanced.

Consumer Rights Regarding Medical Debt

Consumers have several protections and rights concerning medical debt, influencing how unpaid bills are handled. The No Surprises Act, enacted to protect consumers from unexpected medical bills, helps prevent certain types of debt. This law generally prohibits balance billing for emergency services and certain non-emergency services provided by out-of-network providers at in-network facilities, ensuring patients are only responsible for their in-network cost-sharing amounts.

Many non-profit hospitals and healthcare systems have charity care policies or financial assistance programs to help patients who cannot afford medical bills. These policies often provide free or discounted care based on income levels and family size, reducing or eliminating a patient’s obligation. Eligibility for charity care is typically determined by specific criteria, and patients may need to apply for these programs and provide financial documentation.

Beyond these specific medical debt protections, general consumer protection principles also apply to medical debt collection. Laws protect consumers from unfair or deceptive practices by creditors and debt collectors. If a collection agency engages in practices that violate federal or state regulations, consumers have the right to dispute these actions and seek recourse.