How Medical Debt Affects Your Personal Finances FAQ

By Michael Wong, M.D.


Note: This article does not constitute legal or financial advice. Please consult the appropriate legal or financial professional for your particular situation.



Medical debt does not discriminate. Whether you have insurance or not, whether you were planning a doctor visit or experienced an unexpected trip to the emergency room, high medical bills are a major burden for Americans everywhere.


As healthcare costs continue to rise faster than the ability of many Americans to pay, they are left facing the unfortunate reality of medical debt. With it, comes a myriad of concerns and questions. In this article, we are going to go over the most commonly asked questions when it comes to unpaid medical debt and personal finances. These include:


  • Can Medical Debt Garnish Wages?
  • Can Medical Debt Affect My Credit  Score?
  • Can I Lose My Home Over Medical Debt?
  • Am I Liable For My Spouse's Medical Bill?



Can Medical Debt Garnish Wages?


The short answer is yes, unpaid medical bills can lead to a wage garnishment. 


Wage garnishment of any kind is not uncommon. It’s reported that among those living in the US who are earning between $25,000 and $45,000, about  5% are impacted by wage garnishment.


However, this does not happen immediately. There are some crucial steps that must first occur before any wage garnishment. If you fail to pay for the medical services within the set time period, the creditor can then proceed to sue you. Afterwards, the creditor can obtain a state court judgment against you, and then seek to enforce to garnish your wages.


So there are quite a bit of steps, and not every creditor or medical provider chooses to go down this route. In a recent article, less than 40% of hospitals in Virginia sued patients in an attempt to garnish wages for unpaid medical debt. This varies state by state, hospital by hospital. 


The maximum amount your wage can be garnished also varies state by state. If a creditor succeeds in obtaining a court order to garnish your wages, federal law limits the amount  to 25% of your disposable earnings.  State limits may limit this even further.


Can Medical Debt Affect My Credit  Score?


Another yes. 


Medical debt is just like any debt, in that unpaid bills can hurt your credit rating. “A collection that hits a credit report could have an impact of up to 100 points,” says Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. This in turn restricts your ability to borrow, buy property, and even get a job. 


But again, the process is not immediate.


For medical debt to affect your credit score, it has to be reported to a credit bureau. Most hospitals and medical providers will not report your debt directly. However, they may turn your debt over to a debt collector or collection agency, who may report it.  In a 2018 Consumer Reports survey of adults who had a large health care expense, nearly 30 percent said the bill ended up with a collection agency. 


Fortunately, medical debt is treated more favorably than other debts. The three major credit bureaus (Experian, Equifax and TransUnion) offer some leniency when it comes to hospital bills. Here are some key distinctions:


  • 6 months (180 days) waiting period: Credit bureaus have to wait 180 days before listing medical debt on your credit report. This grace period allows you time to resolve or dispute your medical bill. 

  • Removal from report: Most collections debt that appears on your credit report appears for at least seven years. However, this is different with medical debt. If your debt is paid or covered by insurance, it is expunged!


These rules came in 2017, and reflected a view that high medical debt was more an anomaly and function of rising cost, and less an indicator of credit risk.  

The latest FICO credit scoring model, FICO 9, all give less weight to unpaid medical collections than to other collections.

One big note: your medical bills can be sent to collections even if you are currently making payments on it. If you make small payments, or a late payment when you’re under an arrangement, it may still end up in collections.


Can I Lose My Home Over Medical Debt?


Sadly yes, but this one may be the rarest. 


Medical providers and the IRS virtually never force a home sale for an unpaid medical bill. In addition, many states offer some sort of homestead protection, keeping it protected against creditors other than your mortgage lender. 


But for whatever reason, a hospital or creditor decides to go this route, they again have to go through many steps first. They must obtain a judgement from the courts. The creditor will notify you, file a suit, and present their case in front of a judge. You may present your side of the story as well.


If the judge rules in favor of the creditor, you’ll receive a “judgement” against you. This is a legal obligation to pay your debt. This is similar to the process of wage garnishment and often that occurs first. However, they can use the judgement to seize your assets.

Depending on state law,  a lien can be filed against your home and other accounts. This grants the creditor a specific amount of money upon sale of your property. This rarely means a forced sale, but the lien will sit on your property’s title until the debt is repaid. 


Am I Liable For My Spouse's Medical Bill?


Yes, no, maybe.


This is the one that depends on your state the most. There are several factors in play here:


  • Jointly and Severally Liable


Remember your vows? “For richer or for poorer… in sickness and in health”? Yeah, those ones. In some “community property” states, you may be jointly liable for your spouse’s medical bills. This means the medical provider or creditor can pursue your spouse for the money, or both. The entire bill belongs to you both, and not just half. 



This, of course, changes drastically If you signed a document stating that you would be responsible for payments on debt or medical bills. Co-signing bills will obligate you to pay, and this is seen in all states. 



  • Marital Status


To complicate things further, an important distinction in some states is your marital status. If you are separated (not necessarily divorced), you may not be liable for your spouse’s debt. This is seen in Virginia and Minnesota. This of course gets even more muddy if you’re living in the same house but are planning on divorce. In this case, it’s best to seek local legal counsel. 



  • Necessary Care


Under the doctrine of necessities, in some states one spouse is liable for the “necessary” expenses incurred by the other spouse. What is deemed “necessary” is much more up to interpretation. Cosmetic and elective surgeries may not fall in this category, however emergency medical intervention often does. 



The Take-Home Message


The main point is that medical debt can get disastrous - if you let it get to that point. 

The silver lining in this doom-and-gloom piece is that hospitals and medical providers are easy to work with, unless you wait until it goes to collections.


Providers don’t like debt any more than patients. There are many resources that can help. Here’s an article I wrote on ways you can negotiate your bill. Another article (by yours truly) on the different ways you can pay your medical debt. 


So reach out early and often with your provider to try and settle your debt. You’ll be surprised at how successful you can be.



Disclosure: Michael Wong is a cofounder of Walnut. Walnut is a modern and ethical option for people looking to split their medical bill into affordable monthly payments. Find out more at hellowalnut.com

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