When Dr. Omar Atiq closed his cancer care clinic in Pine Bluff in Arkansas, he realized that some of his patients still owed him hundreds.
After discussing it with his family, he chose to cancel the debt of 200 patients, totaling $650,000.
A storm of letters of gratitude flooded him soon after as his story made headlines locally and globally.
Those patients have every reason to be utterly grateful.
Medical debt has been a headache among Americans for decades, especially now in the midst of an ongoing pandemic.
A survey of over 1,000 people last year found that 37% are concerned about their ability to clear debt this year.
A different survey, also last year, saw that more people want to discuss payment options before getting care.
Getting medical debt is bad, and that’s an understatement.
You can’t just ignore it in the hopes that it’ll go away eventually; that’s a recipe for a lawsuit and more trouble.
Here’s a rundown of everything that can happen if your medical debt is left unsettled.
1. Debt Collectors
In most cases, the hospital or clinic will sell your debt to debt collectors that will collect your dues on their behalf.
They’ll contact you to discuss settling your debt, but they’re not allowed to threaten you into doing it their way.
For debtors who have a hard time paying dues, medical collections usually have several payment options that would best suit their financial situation.
2. Credit Score
Expect your credit score to take a nosedive the moment debt collectors get a hold of your medical dues.
According to Equifax, medical debt collection can subtract as much as 100 points from your credit score.
Declaring bankruptcy related to the debt, according to FICO, can deduct at least 200 points depending on your current credit score.
On a scale of 300 to 850 points, a 100-point deduction is already horrendous.
If a typical American has a credit score of around 750 points, the collection record will bring it a tier below from Very Good to Good.
With bankruptcy, it’s two tiers from Very Good to Fair; lenders will consider the individual a subprime borrower.
If you maintain a Very Good credit score, the collection won’t impact you much.
The vulnerable ones are those with Fair scores or lower, as it’ll affect their ability to apply for other loans, let alone buy a house or car.
If approved, they’ll most likely get loans with unfriendly interest rates and payment terms—translating to more financial burdens.
3. Debt After Death
If the debtor passes away before settling dues, the debt collection remains.
The surviving family members won’t be responsible for the debt though, but collectors can take it out on the deceased’s estate.
An executor, either appointed by the debtor’s will or by the court, makes sure that the estate pays for the debt.
This can be done by deducting funds from the deceased’s bank account or selling some properties.
The only times that a surviving family member can be held accountable for the balance is when they are:
- A co-signatory for the debt (e.g., taking out a loan)
- A co-holder of their joint bank account or credit card
- The debtor’s spouse living in community property (this applies to only 13 states)
- Appointed the executor by the debtor’s will
If the medical debt is more than the estate’s value, the latter is declared an insolvent estate.
At this point, the debtor is effectively bankrupt, but the surviving heirs cannot be compelled to pay for the remaining balance.
4. After Settlement
Let’s say you managed to settle your dues down to the last penny. There’s still a long, hard road ahead of you.
First, there’s the matter of your credit score. Medical debt collection can stay on record for as long as seven years; bankruptcies stay far longer, over a decade.
For this reason, declaring bankruptcy should be considered a last resort. After all, a 200-point deduction is already painful to see on a credit report.
As mentioned earlier, you might not get good terms out of loans and other things.
However, low-credit score loans can work in your favor, especially when you need cash fast.
You can also have the credit reporting agency remove the demerits in your report, albeit you’ll have to convince them.
Conclusion
The best way to deal with medical debt is to avoid having one in the first place.
However, diseases and physical injuries are not completely preventable.
In the course of our lives, we would need medical care and healthcare services in one way or another.
The best thing to do is to stay safe, develop healthy habits, and prepare for contingencies as best you can.