What Happens If You Don’t Pay Your Medical Bills?

Unpaid medical bills can lead to significant financial consequences, impacting an individual’s financial stability. Ignoring these obligations does not make them disappear; instead, it initiates a series of actions by healthcare providers and debt collectors that escalate over time. Understanding this process is important for anyone facing medical debt, as proactive engagement can help mitigate severe outcomes.

Initial Provider Actions

When a medical bill remains unpaid, healthcare providers begin collection efforts with reminders and phone calls. This initial phase aims to secure payment or establish a payment arrangement. Providers often allow a grace period, ranging from 60 to 120 days, before escalating efforts. During this time, they may send follow-up invoices, email reminders, or offer flexible payment plans to resolve the outstanding balance.

If these internal efforts prove unsuccessful, the provider may transfer or sell the debt to a third-party collection agency. This transfer typically occurs after 90 to 180 days of non-payment, depending on provider policies and insurance status. Once the debt is with a collection agency, the individual will receive communications directly from that agency, initiating a more aggressive debt recovery phase.

Credit Reporting

Unpaid medical bills can significantly impact an individual’s credit report and score, though recent changes have altered how this debt is reported. Historically, medical debt appeared on a credit report soon after being sent to collections. Current rules provide more consumer protections.

As of July 1, 2022, paid medical collection debt is no longer included on credit reports. Unpaid medical collection debt will not appear on a credit report until one year (365 days) after being sent to collections, providing a substantial grace period for resolution. Additionally, medical collection debt with an initial reported balance under $500 was removed from credit reports as of April 2023, significantly reducing the number of medical collection accounts affecting consumer credit. While VantageScore 3.0 and 4.0 models now exclude all medical collections from their calculations, larger unpaid medical balances (over $500) that remain unresolved after the one-year waiting period can still negatively affect credit scores and remain on a report for up to seven years from the date of delinquency.

Legal Proceedings

When collection agencies are unsuccessful in recovering medical debt, the debt holder may pursue legal action. This typically involves filing a lawsuit against the individual in civil court to obtain a judgment. The lawsuit process begins with the individual receiving a summons and a complaint, formally notifying them of the legal action and amount claimed.

Responding to the summons within the specified timeframe, usually 20 to 30 days, is important. Failure to respond can result in a default judgment. A default judgment means the court rules in favor of the debt holder without hearing the individual’s defense, making the debt legally enforceable. Even if a response is filed, the case proceeds through the court system, potentially leading to a trial or settlement.

Post-Judgment Collection Actions

Once a court judgment is obtained, the debt holder gains powerful tools to collect the debt. These post-judgment actions are legally enforced methods to seize assets or income to satisfy the judgment. Common methods include wage garnishment, bank account levies, and property liens.

Wage garnishment allows a portion of earnings to be withheld by an employer and sent directly to the debt holder until the judgment is satisfied. Federal law, the Consumer Credit Protection Act, limits garnishment from disposable earnings to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. Bank account levies permit the debt holder to freeze and seize funds in a bank account, up to the judgment amount. Property liens place a legal claim against real estate, which can complicate or prevent its sale or refinancing until the debt is paid.

Bankruptcy Considerations

For individuals overwhelmed by medical debt and other financial obligations, bankruptcy offers a legal pathway to debt relief. Medical debt is generally unsecured debt, similar to credit card debt or personal loans, meaning it is not tied to a specific asset. This classification is significant in bankruptcy proceedings.

Chapter 7 bankruptcy, often called liquidation bankruptcy, can discharge most unsecured debts, including medical bills. This process involves a trustee overseeing the sale of non-exempt assets to repay creditors, though many personal assets are protected by exemptions. Chapter 13 bankruptcy, a reorganization bankruptcy, allows individuals with regular income to create a repayment plan, typically three to five years, to pay off debts. Under Chapter 13, medical debt is included in the repayment plan, and any remaining balances may be discharged upon successful completion. While bankruptcy offers a means to address significant medical debt, it is a complex legal process with long-term financial implications.