Millions of Americans hold a type of debt that has very little predictive ability to determine their creditworthiness. Medical debt has become a stain upon the finances of 43 million people in this country, hurting their ability to obtain loans and mortgages with decent interest rates. Many of these people receive medical debt through no fault of their own, as we learned from our blog last week.
Now that we have established the issue, how can this problem be resolved? A group of US Senators and Representatives are working together to reform how credit agencies report medical debt. If the law passes and is signed, it will become much easier for people to remove medical debt from credit reports.
How Will The Medical Debt Relief Act Work?
If you want to know how this legislation will help remove medical debt from credit reports, keep reading. There are several benefits to this bill.
- The new legislation would prevent medical debt from appearing as derogatory marks on credit ratings if it is less than 180 days delinquent. Debtors would be notified of the 180 days beforehand and be given time to apply for assistance, report billing errors or negotiate with hospitals and insurance companies.
- The Medical Debt Relief Act would remove derogatory marks if debts have been paid or settled by insurance companies. In other words, if you did have a derogatory mark caused by medical debt, paying or settling the bill would make it drop off your report. Although the current FICO 9 credit scoring system includes similar (but not identical) protections, not all lenders have adopted the changes.
Does this bill have a chance of being passed by Congress and signed into law by President Obama or the next President of the United States? As of now, www.govtrack.us has given the Medical Debt Relief Act a 2 percent chance of passing. While it is not impossible this bill will pass, it seems unlikely at the moment.
If you have medical debt, keep your chin up. Future legislation will almost certainly be created with similar language. Credit scoring agencies have previously testified before Congress that medical debt is a poor predictor of creditworthiness. If medical debt continues to hurt consumer spending, or becomes worse for Americans, lawmakers will likely act to resolve the situation out of necessity.
The Kansas City bankruptcy attorneys at The Sader Law Firm can help discharge excessive medical debts.