Most types of personal debt, like credit card debt, can be wiped away through bankruptcy. However, medical debt is treated differently under bankruptcy law. Medical debt is considered a non-dischargeable debt in both Chapter 7 and Chapter 13 bankruptcies. This means even if you declare bankruptcy, your medical debt will remain.
The only exception is if you can prove the medical debt would cause “undue hardship”. However, this is a very difficult standard to meet in court. Essentially unless paying the medical debt would prevent you from affording basic living expenses like food and housing, the debt will not be discharged.
Another key difference with medical debt is it typically does not show up on credit reports from the three major credit bureaus (Equifax, Experian, TransUnion). This means having medical debt will not directly lower your credit score like other debts.
However, if the medical debt goes to collections, the collections account will be reported and damage your credit. But keeping the debt with the original provider means no credit damage.
Hospitals and medical providers are typically more willing to negotiate payment plans and restructure debt compared to most other industries. This is likely because:
This flexibility benefits those looking to restructure medical debt. Options like payment plans, discounted lump sums, or forgiveness programs are more common.
There are also many medical debt assistance programs available that do not exist for other debt types. These can provide major relief through free healthcare, debt forgiveness, and more.
For example, those meeting income limits may qualify for Medicaid coverage which pays medical costs. And hospitals have financial assistance programs providing discounted or free care for low income patients.
The process to renegotiate medical debt typically involves:
Here are some additional medical debt restructuring tips:
Restructuring medical debt effectively takes patience and planning, but doing so can provide great financial relief. And healthcare providers are often willing partners in finding ways to make costs more affordable.
Below are answers to some frequently asked questions on negotiating down and restructuring medical debt:
Hospitals are not legally required to negotiate or offer payment plans for medical debt. However, most nonprofit hospitals have financial assistance policies requiring them to make reasonable efforts to assess eligibility for reduced-cost care. And for-profit hospitals also typically negotiate as a way to increase collections.
The best approach is to contact the hospital billing office as soon as possible after receiving medical bills. Be prepared with income verification documents and reasonable payment offers based on what is affordable each month. Getting the process started quickly and highlighting financial hardship results in more substantial discounts.
Yes, medical debt can usually be reduced substantially through negotiating payment plans or lump-sum settlements for less than what is owed. Most hospitals start by offering a discount of 20%, but deeper discounts of 50% or more off the full bill are also common depending on financial circumstances.
No, medical debt settlement is generally not bad and can be much more feasible than declaring bankruptcy. Settling medical debt for less than the amount owed will not lower credit scores as long as payments on the reduced amount agreed to are made consistently. This makes debt settlement arrangements an effective way to become debt free.
If hospital bills go unpaid for an extended period, the debt can be sent to a collections agency. This leads to the unpaid account being reported to credit bureaus, damaging your score. Hospitals typically wait at least 120 days after the first bill is sent before assigning accounts to collections agencies. This window provides time to contact the billing office and set up a payment plan.
The key takeaways on medical debt restructuring include:
We hope this overview gives you a better understanding of how restructuring medical debt works. The most important thing is reaching out for help instead of delaying. Financial counselors and medical billing advocates can also provide guidance when dealing with large hospital bills.
I hope this overview on how medical debt restructuring works provides useful background and tips. Let me know if you have any other questions!
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