Medical Bad Debt Erased from Credit Reports?

CNN Money tells us that in 2010, around 30 million adults were contacted by a collection agency for unpaid medical bills. This is on top of an additional 44 million Americans who are actively paying down existing medical debt.

We’re sick. We’re poor. And we’re in a lot of debt.

One of the consequences of the slow-but-steady increase in unemployment (at 9.2% as of June 2011; something exciting happens when we hit 10%, I just know it!) is the slow-but-steady decrease of insured people. For the recently jobless, COBRA will get you up to 18 months of your old company-provided insurance (thirty-six if you can convince your spouse that divorce is more economical at the moment) — for a cost. Soon, though, the jobless find themselves insuranceless as well.

Then, of course, Something Medically Awful is almost guaranteed to happen to you (p.s., I’m currently obsessed with this book, so I can help out a lot if you need help with your list of Something Medically Awful) and there you are: no job, no insurance, and a mountain of medical debt because of the smallpox/ebola/beri-beri you picked up from the unemployment office.

Medical debt — especially unpaid medical debt that’s been turned over to a collection agency, can sit on a credit report for seven years, doing all sorts of terrible things to your credit rating. Unlike credit card debt, however, medical debt isn’t necessarily an indicator of debt responsibility. Just because you can’t pay off your five- or six-digit medical bill doesn’t necessarily make you an overall credit liability.

Which is where the bi-partisan Medical Debt Responsibility Act of 2011 comes in. North Carolina Democratic Congressman Heath Shuler proposed the bill which requires that the three major credit bureaus remove records of medical debt of up to $2,500 within 45 days of being paid off.

The Act essentially takes settled and paid-off medical debt (up to $2,500) off the credit reporting table. As CNN Money points out, “One medical debt can knock off about 50 points from an average credit score.”

Of course, the proposed Act isn’t being met with open arms. Many lenders believe that they have a right to know if a person was delinquent on any debt. “Credit bureaus and lenders also argue that while erasing medical debts from credit reports will help those people who fell upon unfortunate circumstances, it will also aid those who were perfectly capable of paying their medical bills but chose not to — a factor they use to determine a consumer’s creditworthiness.”