Hallelujah, you’re alive and survived your illness. Hopefully, this was a temporary illness, emergency, or at least a manageable situation. Yet, the road to recovery is far from over.
Ideally, from a healthcare standpoint, the worst is behind you. However, if you’re dealing with hospital collections or medical bills from this situation, your creditworthiness is now in need of treatment.
Yes, medical debt is the leading type of consumer debt, both pre and post-Obamacare. It’s also been the leading reason for people to file personal bankruptcy, for decades and continues to be.
The purpose of this article is to share the four consumer steps for dealing with hospital debt. And how to navigate this dangerous and all to common world of medical bill collections, while protecting yourself, exercising your rights as a consumer, and most importantly your creditworthiness.
Hospital Bill Collections
This is the road hospital collections, often take. Once you’re released, you’ll receive hospital bills for roughly the next six months. If this medical debt is not paid, then the hospital will either assign, or sell your debt to a third-party debt collector.
This third-party debt collector will begin calling you, sending letters, and this is who actually reports the medical collection item on your credit reports. This is what’s called a data-furnisher, as in the company that’s reporting the negative information on your credit reports.
To be clear, the hospital won’t be the company that reports the account to the credit bureaus. They are not what’s called a data-furnisher. Instead, it’s the collection agency that has the rights to your account, who will report the medical collections on credit report files.
Yes, this will hurt your credit score. Anthony Sprauve, a spokesman for FICO, says collections on your credit reports can damage and drag your credit score down by as much as 100 points. That’s huge!
It’s true, there have been recent changes made to the FICO credit scoring algorithm that view medical debts in a much more consumer-friendly light. And while it’s also true, if your insurance company ultimately pays this bill, it’s supposed to be removed from your credit reports.
The problem is two-fold. First, virtually no lenders or creditors actually use the newest version of the FICO scoring algorithm. Even the ones that let consumer’s see their score for free. Frequently, buried in the fine print they’ll say this isn’t the credit score used to make lending decisions.
Second, medical bills are notorious for being inaccurate. People are overcharged, billed for services they didn’t receive, and if you are ever curious enough to truly review these medical bills people are price gouged beyond comprehension.
They’re charged $24 for one Tylenol tablet, and much worse. By the way, there are a multitude of debt collectors that work exclusively with medical bills. And even some collection agencies, that work only with hospital debt.
Before we share the specifics of what debt collectors can do legally to attempt to collect this hospital debt. We need to mention the Fair Debt Collection Practices Act (FDCPA).
This is federal legislation passed by Congress with the intention of protecting you and all consumers from aggressive debt collectors. It’s the regulations and rules for the debt collection industry.
In brief, it says debt collectors are required to be straightforward, honest, and upfront. Along with providing you with a modicum of respect and dignity that every human being deserves.
And yes, the FDCPA is violated just about as often as our drug laws in this country. It says much more, and it’s worth your detailed review at your convenience.
Will Paying Medical Collections Improve Credit?
The most pressing concern for folks is will paying off collections improve credit? You’d think so. It certainly makes sense.
But, as of 2018, no. You see, the only thing that happens if you just pay medical collections and nothing more, is a change in the status of that item on your credit reports.
It’ll be changed to a paid collection. This is still a negative item to have. And as we’ve mentioned it’s virtually guaranteed to lower your credit score, possibly as much as 100 points.
Look, the key to getting a better credit score is to remove this collection item from all three of your credit reports entirely. And this can be done, legally, and long before the maximum seven-year sentence.
In full disclosure, some folks may discover after following the four steps in this article that the easiest and most efficient way to clear your credit report, is to pay collections. But, we first need to perform the necessary due diligence.
Hospital Bill Collection Methods
In addition to the endless phone calls, and threatening letters, this third-party debt collector is also going to report negative information on your credit reports. Further, it’s very likely your total balance will balloon.
Did you know debt collectors can legally charge you a sky-high interest rate? And believe it or not, they can even charge your account with collection fees? It’s true, and these fees can be substantial amounts of money.
If they’re unable to collect payment, they have two options. First, they can sell the rights to your hospital debt, to yet another debt collector. This new debt collector will, of course, begin calling you, sending letters, and they’ll report even more negative information on your credit reports.
Or alternatively, they can sue you. As in file a civil lawsuit. Their goal is to win a judgement, because then they’ve really got you by the short and curlies. Judgements can result in wage garnishment, liens being placed against you and or your property, and even asset seizure.
For full details, check out your local legislation, because every state has unique laws. The worst part is a judgement on credit report files will annihilate your credit score, and virtually overnight.
Please, don’t just ignore hospital collections and with the false belief, it’ll just disappear like a fart on a windy day. It’s much more likely this financial annoyance will snowball and become a financial crisis.
4 Consumer Steps For Hospital Collections
1. Request Debt Validation
The very first step for dealing with hospital collections, is to request debt validation on your alleged account. This is your right as a consumer, granted by the FDCPA.
When we do this, we’re essentially saying to the debt collector you first prove this is truly my debt and you own the rights to it, and then we may be able to discuss repayment. This is most effective when you make your request in writing, and send it using certified mail, with return receipt requested.
You see, they’re required to respond by providing you with the paperwork, documents, and evidence that does prove this is truly your debt. This paperwork should clearly show all the details about the debt such as who the healthcare provider was, dates of account activity, the balance of the debt, and much more.
If they fail to validate your account, for any reason, then in accordance with the FDCPA you’re no longer legally responsible for payment. Further, they’re supposed to contact all three credit bureaus to have them remove collections from credit report files, regarding this account.
2. Statute of Limitations
If they do validate your debt, our next step is to review this paperwork in detail. We’re looking for your last date of account activity, which in many cases, will be the dates of your actual hospital visit.
Because, contrary to popular belief you’re not legally responsible for payment forever. The statute of limitations, a state law, says exactly how long you are legally responsible for payment.
Generally, it’s about seven years. This does vary by state, so for full details, check out your local legislation. Once this legal time window runs out and expires, your legal obligation for repayment ends.
In other words, you’re only legally responsible for payment for a specific number of years. Once the statute of limitations time window runs out, your legal obligation for payment ends. As in the medical debt is forgiven.
This state law applies to hospital collections, credit cards, utilities, charge off accounts, telecommunications, and virtually every type of consumer debt. The few exceptions are federal student loans in default and federal income tax.
Beware. Yes, please beware, debt collectors especially late-stage and junk debt buyers are notorious for re-aging consumer accounts. This is often done illegally and with the obvious purpose of continuing to attempt to collect payment, despite your legal obligation having expired.
3. Negotiate a Settlement Agreement
If your account is validated, and it’s within the statute of limitations time window, we now need to discuss how to negotiate medical bills in collections. To potentially pay collections, and so it will help your credit score.
There’s two parts of your settlement agreement, and it’s best to get this agreement in writing. The first part is to negotiate to settle and pay just a fraction of your total balance.
Oftentimes, you’ll be able to negotiate to settle for as little as 15% up to around 45% of the total debt. For instance, with a $2,000 debt, we may be able to settle for as little as 20% or $400.
After all, when you add in the interest fees and collection fees the full amount your paying for that Tylenol tablet could be $64. And that’s no good. This is standard operating practice, and they’ll be thrilled to accept a settlement payment for less.
But wait, this second part of your agreement is mission critical. We need to get this debt collector to agree that in exchange for our payment, they’ll stop reporting our account information to all three credit bureaus.
This is key to removing medical bills from credit report files, in our fourth and final step. And we won’t get stuck with that paid collection on our credit reports, which will cause us to have a bad credit score.
Pay For Delete
Have you heard about a pay for delete approach to dealing with debt collectors? If not, this is where we first demand the debt collector delete the negative item from our credit reports and then we’ll make payment.
It sounds wonderful. And we wish this was an effective and applicable way of paying collections, but it’s not. It’s beyond wishful thinking. We have better odds of seeing PETA (People for the Ethical Treatment of Animals) opening a butcher shop on every American street corner.
Truly, this won’t ever happen. In our decade-plus years of working the front lines with people fixing credit, we’ve yet to hear of one individual or one debt collector ever making this agreement. For a multitude of reasons.
Instead, it’s much more effective and pragmatic to simply get the debt collector to agree to stop reporting our account information to the credit bureaus, in exchange for our payment. This is an agreement they will make, even if in some cases, reluctantly.
4. How To Remove Medical Collections From Credit Report
Our final step is looking at how to remove medical collections from credit report files, because this will improve your credit score. To do this, we’ll need to exercise more of your rights as a consumer.
This time, those granted by the Fair Credit Reporting Act (FCRA). This federal legislation is how to dispute credit report items. It enables us to challenge and dispute any item on our credit reports, so long as we believe it’s incorrect, misleading, or made in error.
There’s three ways to dispute credit report items: online, over the phone, and by mail. Once the credit bureaus get our dispute, they first get to deem it valid or frivolous.
This is another conversation for another time and place. So make sure to sign up for our free newsletter for more credit restoration tips with Dan Willis, and join our congregation.
Once the credit bureaus get our dispute and deem it valid, they’re required to investigate the item. They’ll call it a re-investigation. As if there was an original investigation that occurred before the item was slapped on our credit reports.
Nevertheless, during their investigation, they’ll contact the debt collector and ask them to verify our account and any relevant information. As per our settlement agreement directly with the debt collector, they won’t verify the account during the credit bureau investigation.
As a result, the credit bureaus must remove this item from our credit reports. This is how to remove medical bills from credit report files, legally, and by exercising your consumer rights. Because every single one of these dings, blemishes, and marks on our credit reports is supposed to be verifiable.
On a sidebar, if you have this account on all three of your credit reports with Experian, Equifax, and TransUnion. We’ll need to file three separate credit bureau disputes. One dispute for each credit bureau.
Look, it’s not easy dealing with an illness. You need to recover physically and now you’ve got a whole other, arguably more stressful, situation for your creditworthiness to recover. It’s a double whammy.
Medical bills on credit report files are virtually guaranteed to damage and drag your credit score down. Debt collectors aren’t your friend. Nor are the credit bureaus. They’ve been fined time and again by our federal government for violating consumer rights under the FCRA.
The most recent in 2015, all three credit bureaus agreed to pay $6 million to 31 state attorney generals for allegedly violating consumer rights under the FCRA. This is in addition to fines issued to the debt collection industry, every single year.
And many individuals have actually sued the credit bureaus, and won. One of the most notable examples was in 2013 with a woman by the name of Julie Miller. Julie woke up one day to discover 38 bogus collection accounts on her Equifax credit report.
She did exactly what the FCRA says and filed her Equifax dispute, and for the next two years, Equifax continued to find her dispute frivolous. They would request additional information from Julie, and she complied.
She sent W-2’s, pay stubs, tax returns, DNA, her firstborn child, and all to no avail. Yes, small exaggeration. She finally got fed up and sued them. She won, and was awarded $18.6 million by a federal jury.
This was later reduced by a federal judge to $1.8 million. Here’s the kicker, even a federal judge found Equifax’s behavior so irresponsible and obnoxious he awarded Julie nine times her compensatory damages in punitive damages.
To clarify, she won $180,000 in compensatory damages, this is the money to make your life whole again, the actual life damages. Her punitive damages, after the federal judge’s reduction, was for $1.62 million. This is the money for the annoyance and aggravation, and it’s a full nine times her compensatory damages.
When all is said and done, your credit score is much like your Grade Point Average (GPA) in glory school days past. It doesn’t matter if you’re acing all your classes, if you’re failing The Art of Walking, because this negative mark is going to ruin your overall GPA.
This too is true of your credit score. And this is why it’s of such critical importance to clean up credit report dings, blemishes, and remove these negative credit report items.
We encourage our members to consider professional credit repair companies to help. Because the good news is in 2016 alone, over 9 million negative items were removed from consumer’s credit reports.
One of the best firms is The Credit Pros. They’ve helped their client’s successfully remove collections, medical bills, late payments, charge offs, liens, judgements, and so many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to get your credit score up with Dan Willis, sign up for our free newsletter and join our congregation.
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