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Plan to get medical debt off credit reports is “on track”

On Behalf of | Jul 6, 2024 | Bankruptcy

Many Americans suffer from a crippling financial burden that’s unheard of in many other industrialized countries – medical debt. Even people with health insurance are often left with massive medical bills amid a serious illness or after a devastating injury that are far beyond what they can afford.

Medical debt has historically been the most common debt to be sent by creditors to collection. According to the Consumer Financial Protection Bureau (CFPB), 20% of medical debt that has gone to collection appears on people’s credit reports. Further, 58% of the third-party debt on credit reports is medical debt. This, of course, can lower a person’s credit score significantly.

Thankfully, there’s been some good news over the past few years – with more on the horizon. The Biden administration has been taking steps to exclude medical debt from credit reports. The leading credit reporting agencies have already stopped including any medical debt under $500 on these reports.

Final CFPB rule expected by end of year

The CFPB has a proposed rule that would exclude all medical debt from credit reports. That rule is expected to be final before the end of the year. Vice President Kamala Harris says that the administration is “on track” to get this debt off credit reports. The VP says, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.”

She added that “it’s not a sign of irresponsibility” if someone can’t pay their medical bills in full. Unlike many other kinds of debt, people often have no control over whether they incur medical expenses. In fact, one argument for taking this debt off credit reports is that it hasn’t been found to be an accurate indicator of what kind of credit risk someone is.

Over three-quarters of medical bills contain errors

Oftentimes, the amount for which people are billed for medical expenses isn’t even accurate. The CFPB’s director says that a whopping 80% of medical bills include charges that don’t belong there. At times, people don’t understand the various items included on their bills, so it’s difficult to dispute them.

While this change will definitely help people who have seen their credit score lowered by this medical debt on their credit reports, it won’t reduce the debt itself, which can become crushing for individuals and families. Those facing the burden of medical debt that has affected their financial well-being are wise to explore options for financial relief, including bankruptcy.