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Credit reporting changes may benefit medical debtors

The attorney general of New York reached a settlement with the three most powerful credit reporting agencies whereby the latter will modify the way they report unpaid medical debt. The changes are to be phased in gradually, with full implementation to come in 2018.

The agencies, Experian, Equifax and Transunion, will wait 180 days following the initiation of a collection action before including medical debt on an individual’s credit report. The debt will remain on the credit report if the individual is responsible for paying the bill. If the medical debt is later paid by an insurer, the record of the debt will be removed from the individual’s credit report. The logic behind the move has to do with the nature of medical debt. It often arises as the result of an unexpected circumstance and, according to a study by the Consumer Financial Protection Bureau, it may not be as effective an indicator of creditworthiness as other types of debt.

It has been reported that the new rules will completely take effect by early June of 2018. In the meantime, FICO Score 9 gives less weight to unpaid medical debts and ignores collection accounts that are subsequently paid. According to some experts, though, most lenders have not yet implemented FICO Score 9.

Individuals who are struggling to pay consumer or medical debts may be encouraged by the changes to the credit reporting requirements, but still it may be necessary to attempt to eliminate or reduce debt by means of Chapter 7 or Chapter 13 bankruptcy. An attorney with experience in bankruptcy law may be able to help interested parties evaluate debt reduction and elimination options while outlining the eligibility and other requirements associated with a consumer bankruptcy filing.

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