What Happens If You Don’t Pay Medical Bills in Collections?

Unpaid medical bills often lead to collection activity. When these bills remain outstanding, healthcare providers may eventually transfer the debt to a third-party collection agency. This transition marks a shift in the collection process, introducing new methods and potential consequences for the individual owing the debt. This article explores the typical steps and implications that arise when medical bills enter the collection cycle and remain unpaid.

Initial Collection Actions

Once a medical debt is placed with a collection agency, the agency initiates a series of actions aimed at recovering the outstanding balance. Communication typically begins with written notices, often referred to as dunning letters, sent to the debtor’s last known address. These letters serve as a formal notification that the debt is now under the agency’s purview and include details such as the amount owed, the original creditor’s name, and information about the debtor’s right to dispute the debt within a specific timeframe, usually 30 days.

Alongside written correspondence, collection agencies frequently engage in telephone communication. Federal regulations restrict the frequency and timing of these calls, generally limiting calls to between 8 a.m. and 9 p.m. in the debtor’s local time zone.

During these communications, collection agencies primarily seek to verify the debtor’s identity and obtain current contact information. They may ask for details such as a full name, date of birth, or current addresses. Agencies also aim to understand the debtor’s financial situation to determine the most effective approach for repayment. Their objective is to secure either full payment or an arrangement for repayment.

Credit Reporting Implications

Unpaid medical debts, once they enter collections, can significantly impact an individual’s credit report and, consequently, their credit score. When a healthcare provider transfers an overdue bill to a collection agency, that agency may report the debt to the major credit bureaus, including Equifax, Experian, and TransUnion. This reporting creates a collection account entry on the credit report, which typically includes the original creditor’s name, the collection agency’s name, the amount of the debt, and the date of delinquency.

Recent changes have introduced specific rules regarding how medical collections appear on credit reports. As of July 1, 2022, paid medical collection debt is no longer included on consumer credit reports. Additionally, unpaid medical collection debt will not appear on a credit report until it is at least one year old, allowing a 12-month grace period for individuals to resolve the bill. Furthermore, as of April 2023, medical collection accounts with an initial reported balance under $500 are no longer included on credit reports.

Despite these changes, larger unpaid medical collection balances, specifically those over $500 and older than one year, can still negatively affect credit scores. While some credit scoring models give less weight to medical collection accounts, their presence can still be a deterrent for lenders. Collection accounts, including medical ones, can generally remain on a credit report for up to seven years from the date of the original delinquency, even if the debt is eventually paid.

A significant recent development is a final rule, finalized in January 2025, banning medical bills from credit reports and prohibiting lenders from using medical information in lending decisions. This rule aims to remove medical bills from credit reports for millions of Americans. The practical impact for consumers remains subject to the rule’s full implementation.

Potential Legal Pursuits

When medical debts in collections remain unpaid, collection agencies or the original creditors may decide to pursue legal action to recover the money owed. This is typically a last resort, particularly for smaller debt amounts, but it is a distinct possibility. The legal process generally begins with the filing of a lawsuit in court, where the creditor seeks a judgment for the outstanding debt.

Upon filing, the debtor receives a summons and a complaint, which formally notify them of the lawsuit and require a response within a specified period. Failure to respond can result in a default judgment against the debtor, allowing the creditor to proceed with collection without a court hearing. If the debtor contests the debt, the process moves to court appearances, where both sides present their cases.

If the court rules in favor of the creditor, a judgment is issued, legally confirming the debt and the creditor’s right to collect it. This judgment can then enable various enforcement mechanisms. Common methods include wage garnishment, where a portion of the debtor’s paycheck is directly withheld by the employer and sent to the creditor until the debt is satisfied. Federal law limits the amount that can be garnished, ensuring a minimum disposable income for the debtor.

Other enforcement actions can include bank levies, which allow the creditor to seize funds directly from the debtor’s bank accounts, or property liens, which place a legal claim against real estate owned by the debtor. A property lien can prevent the sale or transfer of the property until the debt is paid. The ability to pursue these actions is also governed by the statute of limitations, which varies by state.

Debt Resolution Outcomes

Unpaid medical debt in collections can be resolved through several mechanisms. One common outcome is payment in full, where the entire outstanding balance, including any accrued fees, is paid. This resolves the debt entirely and typically leads to the account being marked as “paid” or “closed” in the collection agency’s records.

Alternatively, collection agencies may agree to a payment plan, also known as an installment agreement. This arrangement allows the debtor to pay the outstanding amount over a series of scheduled payments, making the debt more manageable. Such plans often involve a formal agreement outlining the payment schedule and terms. Providers and collection agencies recognize that full lump-sum payment may not always be feasible.

Another resolution method is debt settlement, where the collection agency agrees to accept a reduced amount as full satisfaction of the debt. This option is often explored when a debtor can offer a lump-sum payment that is less than the total amount owed, but still more than the agency might recover through prolonged collection efforts or legal action. Settlement amounts can vary widely, sometimes ranging from 30% to 80% of the original balance.

The impact of these resolutions on credit reports differs. If a medical collection account is paid in full, it is generally removed from credit reports. For settlements, while the account may be marked as “settled for less than the full amount,” the underlying debt is still considered resolved, and the account should be removed from credit reports.