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Medical debt and credit reports

Residents of Washington, D.C., who follow financial news and information may be interested in some findings about bankruptcy. While many people associate personal bankruptcy with credit card debt, studies have found that 60 percent of bankruptcies in the country are related to medical expenses. Medical bills can cause a financial crisis for a person or family even if they have good income and an excellent credit rating.

While health insurance pays for most medical expenses, even people who are insured can find themselves overwhelmed by co-pays or co-insurance, especially when a serious injury or illness occurs. When medical bills go unpaid, collection agencies often take over attempts to collect payment. Someone's credit rating can be negatively affected by any unpaid medical bill just as it can by unpaid credit card bills or loans. The result is that people with excellent credit ratings and a history of financial responsibility can find themselves with a bad credit rating simply because they suffered an injury or illness.

Unpaid medical debt stays on a person's credit rating for seven years. Congress has considered but failed to pass legislation that would require credit firms to remove unpaid medical debt from credit reports promptly after it has been paid. In the meantime, people who have medical debt that is paid or settled after it has gone into default will suffer from the negative consequences to their credit history.

Someone with medical bills that they cannot pay may find relief in the form of bankruptcy. Chapter 7 and Chapter 13 differ in many respects, and an attorney who has experience in bankruptcy law can explain the requirements and effects of each.

Source: Los Angeles Times, "How to escape the medical care debt trap", Steve Trumble, July 22, 2014

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