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How Medical Debt Restructuring Differs From Other Types Of Debt

By Spodek Law Group | February 20, 2024

How Medical Debt Restructuring Differs From Other Types Of Debt

Medical Debt is Non-Dischargeable in Bankruptcy

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.

Medical Debt is Not Reported on Credit Reports

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 are More Willing to Negotiate and Restructure

Hospitals and medical providers are typically more willing to negotiate payment plans and restructure debt compared to most other industries. This is likely because:

  • There are often compassionate billing programs for financial hardship cases
  • High rates of nonpayment means they want to find ways to get some money
  • Nonprofit hospitals have tax and charity care requirements

This flexibility benefits those looking to restructure medical debt. Options like payment plans, discounted lump sums, or forgiveness programs are more common.

Qualify for Medical Debt Assistance Programs

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.

Steps in the Medical Debt Restructuring Process

The process to renegotiate medical debt typically involves:

  1. Reviewing All Medical Bills and Statements – Gather all medical bills to understand total debt owed. Identify the primary creditors.
  2. Assessing Your Financial Situation – Evaluate current income, expenses, assets, and liabilities. This helps in creating an affordable payment plan.
  3. Contacting the Providers – Call each medical provider’s billing department. Explain your finances and inability to pay. Ask about hardship programs or other payment options.
  4. Submitting Applications or Paperwork – Provide income verification and other documents needed to enroll in bill forgiveness or financial assistance. Approval time varies.
  5. Negotiating a Settlement – If programs are unavailable or provide partial relief, negotiate a lump sum settlement. Many providers accept 20-50% of the amount owed. Get any agreement in writing.
  6. Setting Up Payment Plans – If unable to pay the balance in full, request an extended payment plan. Keep the monthly payments affordable based on budget.
  7. Making Payments & Monitoring Credit – Make consistent monthly payments. Also, check credit reports to ensure no unpaid accounts were sent to collections.

Key Things to Know About Medical Debt Restructuring

Here are some additional medical debt restructuring tips:

  • Get started right away – The sooner negotiations start, the more leverage and options available
  • Keep records – Save all medical bills, notices, and written correspondence
  • Seek professional help – Medical billing advocates assist in negotiations and applications
  • Don’t ignore calls or letters – Being unresponsive leads providers to take collection actions
  • Expect a time commitment – The process can take weeks or months depending on situation
  • Any agreement should be in writing – Verbal promises to alter debt often lack legal standing

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.

Common Questions About Medical Debt Restructuring

Below are answers to some frequently asked questions on negotiating down and restructuring medical debt:

Can hospitals refuse to negotiate 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.

What is the best way to negotiate hospital bills?

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.

Can medical debt be reduced?

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.

Is medical debt settlement bad?

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.

Can hospitals put you in collections?

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.

In Summary

The key takeaways on medical debt restructuring include:

  • Medical debt cannot be wiped out through bankruptcy like most other debt
  • Medical debt generally does not appear on credit reports unless it goes to collections
  • Hospitals and doctors usually offer flexible options to make costs more affordable
  • Assistance programs exist to help those struggling with medical expenses
  • Acting quickly to negotiate medical debt saves money and prevents credit damage

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.


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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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