Could the passage of a bill titled the Medical Debt Responsibility Act actually help the housing market recover from the crash that began in 2007? As the state of Florida and the federal government work toward slowing the rate of foreclosures and the stopping the decline of housing prices, this bill, introduced in the U.S. Senate could just be the answer, at least in part. The legislation hopes to aid millions of potential homebuyers who find themselves unable to obtain an affordable home loan due to medical debt, often erroneously billed dinging their credit score.
The problem is that medical debt may show up on and damage a consumer’s credit report without that person even knowing of its existence. The debt can be less than a $100 and still lower a person’s credit score by more than 125 points. And it remains on their credit report for up to seven years. It doesn’t matter if the debt has been paid in full or even settled, it still remains on the report causing havoc with a person’s credit score.
According to an AMA survey in June of 2011, one if five medical claims are inaccurate resulting in more than 30 million errors in the processing of medical claims each year. As many people know, the higher your credit score the more credit will be made available to you and at lower interest rates. Having even a small dent in your score can equate to a denial of an affordable mortgage and that is just one reason lawmakers want to ensure consumers are treated fairly when it comes to the reporting of medical debt.
The legislation would require credit reporting agencies and creditors to remove any medical debt that has either been paid or settled through bankruptcy or some other means within 45 days. One mortgage lender who analyzed data from more than 5,000 applications for home loans found that 2,200 of these borrowers had a collection attempt on their credit report involving medical debt. This debt was usually rather small medical bills and in every case that entry reduced their credit score significantly.
If you are struggling with medical debt and want to begin a fresh start for a more secure financial tomorrow, consider contacting a bankruptcy attorney who will inform you of your rights to seek debt relief. Medical debt is considered unsecured debt and thus can be discharged in bankruptcy. Bankruptcy protection will also stop all debt collection efforts as well as foreclosures and wage garnishments throughout the bankruptcy process.
Source: Housing Wire, “Medical debt slows housing recovery heart beat,” Megan Hopkins, Feb. 8, 2013