The federal government has failed you because of medical debt. But states are fighting back – and some are winning big. North Carolina just wiped out $6.5 billion in medical debt for 2.5 million people. Other states are passing laws to prevent medical bills from destroying your credit.
If you’re concerned about medical debt on your credit report, here’s what you need to know: Protection is uneven across the country. Some states are expanding aid. Others have no protection at all. And the FBI only made matters worse.
100MAmericans with medical debt
$6.5 billionCleared in North Carolina
The Federal Reversal: What Happened
The Biden administration has instituted rules that would have removed medical debt from the credit reports of all Americans. Then the Trump administration declined to defend these rules in court — and moved on.
In October, the Consumer Financial Protection Bureau (CFPB) stated that states do not have the authority to regulate consumer credit reports. One consumer law attorney called it a “180-degree head-turning reversal.”
States fighting back
Despite the federal reversal, states are moving ahead with their own protections. Here’s the deal:
States with strong protection
- Colorado: First state to ban medical debt on credit reports (2023). Now defending the law in court against a lawsuit against debt collectors.
- California: The attorney general confirmed that state law remains in effect
- New York: Bans medical debt from credit reports
- North Carolina: $6.5 billion in debt erased, all 99 participating hospitals
States where efforts stalled
- Wyoming: The legislation has failed
- South Dakota: The legislation has failed
- Indiana: Credit report provisions have been removed
- Ohio: Credit report protections removed from invoice
Alaska and Michigan are introducing new bills to keep medical debt off credit reports. The Alaska bill also prohibits landlords from considering medical debt when reviewing rental applications.
North Carolina’s $6.5 Billion Solution
North Carolina showed what is possible when hospitals work together. All 99 state hospitals agreed to:
- Stop collecting certain debts from 2014
- Automatically provide discounts on care for eligible patients
- Families of four earning less than $96,000 are eligible for assistance
The result: 2.5 million people had their medical debt forgiven. A 60-year-old nurse who worked at the same hospital that picked her up received a letter forgiving her 2014 emergency room debt. “I didn’t believe it,” she said.
Medical debt is fundamentally different from other debt. People do not choose to undergo emergency heart bypass surgery.– Michigan Poverty Act Program
Other state protections worth knowing about
States are trying different approaches that go beyond credit report bans:
- Arizona and New Jersey: Used government dollars to purchase and forgive medical debt
- Oregon and Illinois: Screen patients for financial assistance
- Indiana and Ohio: The interest is capped at 3%, which limits wage garnishment
The problem? Your zip code determines your protection. If you live in a state without these laws, you have no protection against medical debt on your credit or aggressive collection tactics.
What this means for your debt strategy
Here’s the reality: medical debt is real debt. Whether it’s on your credit report or not, you still owe it (unless it’s forgiven like in North Carolina). But how you deal with it depends on your entire financial picture.
If medical debt is just one part of a larger debt problem, you need to understand ALL your options:
- Negotiate directly with the hospital (many have charity care programs)
- Check to see if your state offers protection
- Consider how medical debt fits in with your other debts
- Understand when bankruptcy makes mathematical sense
Take our Find Your Path quiz to see which approach makes sense for your specific situation.
Key Takeaways
- Fourteen states now ban medical debt from credit reports
- Federal protections have been rolled back – states are your only hope
- North Carolina cut $6.5 billion for 2.5 million people
- Colorado is defending its law against lawsuits against debt collectors
- Your zip code determines your protection
- Medical debts are usually part of a larger debt picture: tackle everything together
Frequently asked questions
Will medical debt be removed from my credit report?
It depends on where you live. Fourteen states have laws that prohibit or limit medical debt on credit reports. In other states, medical debt can still occur. The major credit bureaus have voluntarily forgiven debts under $500 in 2023, but larger debts are still being reported.
What should I do if I live in a state without protection?
You have limited options. You can negotiate directly with the hospital or healthcare provider; many of these have charity programs that are not widely publicized. You can also dispute incorrect debts on your credit report. But you can’t prevent legitimate medical debt from being reported.
Can medical collection agencies garnish my wages?
In most states, yes, if they sue you and win a judgment. Some states such as Indiana and Ohio are working on laws to limit wage garnishments for medical debt. Bankruptcy can stop garnishments and eliminate medical debt entirely.
Do I have to pay the medical debt or other debt first?
It depends on your general situation. Medical debt often has lower interest rates than credit cards. If you’re struggling with multiple debts, it makes more mathematical sense to prioritize high-interest debt unless you get sued for the medical debt.
Can I File for Bankruptcy Due to Medical Debt?
Yes. Medical debt is unsecured debt and can be discharged in both Chapter 7 and Chapter 13 bankruptcies. Research shows that medical bills are a leading cause of bankruptcy filings. If you have significant medical and other debt, bankruptcy can give you a fresh start faster than years of payments.
(Source: KFF Health News)
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