According to an article in the Dallas Morning News, medical debt can have a huge impact on a debtor's credit score affecting their ability to obtain home loans, credit cards as well as the interest rate they're offered. The article focuses on the story of Steve Smith who suffered a heart attack during a lapse in his health insurance.
The article said:
"When Steve Smith had a heart attack in 2006, the last thing on his mind was the impact on his credit report. But because of a gap in his insurance, the 59-year-old Smith was hit with medical bills totaling about $70,000 - $8,000 from his surgeon and $62,000 from the hospital. "At first, all of them went to collections because I couldn't pay any of them," said Smith."
Fortunately for Smith, the hospital reduced his medical debt to about $15,000 which he was able to pay off three years ago; however, the medical debt impact on his credit is still there. Despite paying off his debts, his credit score dropped significantly and now he's having difficulty refinancing his home. Plus he is still on a payment plan for his heart surgeon.
Would bankruptcy have been a better choice? Maybe. Over 72 million working-age Americans are suffering from medical debt, many of those debts have gone into collections. Negative marks such as collections action on medical debt remains on a consumer's credit report for 7 years and many lenders consider the medical debt when determining the consumer's creditworthiness. And unlike Smith, most consumers are simply unable to repay medical debt AND their other obligations such as their mortgage, credit card bills and everyday expenses. Bankruptcy will wipe out the obligations to repay unsecured debt, including medical debt and give the debtor an opportunity for a stress-free financial fresh start. A matter of fact, a creditor may be more willing to lend to a debtor who have discharged his debt obligations in bankruptcy than to a debtor who is still obligated to pay thousands towards medical debt obligations.