Medical debts are a leading cause of many Americans filing for bankruptcy. Unpaid medical debt can ruin credit ratings and cause all kinds of stress and discord in your household and your finances. Filing for bankruptcy does offer protection against creditors seeking wage garnishment or other forced repayment proceedings, but it is not the only way. In 2010, an act was passed that offers many the opportunity to get out of significant debt: the Medical Debt Relief Act.
Medical Debt Remains for 7 Years
Medical debt remains on your credit report for 7 years, according to sources; even if you have repaid the debt, it remains on your history, which can damage your standing and make you less desirable as a borrower when it comes to home loans or other credit. In fact, it can be all but impossible in many cases to obtain a favorable home loan agreement with medical debt sticking out like a sore thumb on your credit report. The Medical Debt Relief Act allows this history to be wiped clean at a much accelerated rate compared to the old system. Under the act, as soon as the debt is paid off or otherwise settled, it is cleared from your history, just like that.
The main reason the act is such a sea change is that it marks the first time settled or paid-off debt is totally removed from a borrower’s credit report. Typically, if a debt heads to a collection agency or any type of collection proceedings the damage is already done, as far as your credit report is concerned. Even after the debt is paid, the blemish remains like a scar, and future lenders can see that scar and it makes them nervous. But under this system, once a debt is cleared it is totally cleared, as though it never happened. It is a powerful change in favor of the borrower, and in favor of those who have had the vicissitudes of life happen to them in one way or another; no longer is a person faced with long-term penalties for their misfortune in having gotten ill and racking up debt.
After all, medical debt is not related to a borrower’s credit in any meaningful way. A borrower who defaults on a loan he has applied for, though the circumstances may be out of his control, has still made a choice to obtain such a loan. Those faced with high medical bills have not chosen to purchase medical care; they have been forced to through poor health or injury. That the act recognizes this fact, and puts such debt in its own category, bodes well for the improvement of tools relating to debt and filing for bankruptcy in the future.