Your Medical Debt May Not Show On Your Credit Report: How Does This Affect Your Bankruptcy?

Are you considering filing for bankruptcy, but are worried about your medical debt? You’re not alone. Millions of Americans are dealing with medical debt. Much of this debt is reflected on their credit reports. The estimated total, according to a Consumer Financial Protection Bureau, is $88 billion in medical debt. But, with changes to what types of medical debt are reflected on your credit report, you may be wondering how this could affect your potential bankruptcy. Here’s what you need to know:

What Type of Debt is Medical Debt?

If you are considering bankruptcy and have medical debt, you need to understand the differences between secured debt and an unsecured debt. Knowing this can be helpful if you are planning on filing for bankruptcy. So, what is the difference between unsecured and secured debts?

Unsecured Debts

An unsecured debt is not secured to an asset for collateral. This means that if you fall behind on payments, your assets will usually not be taken. Since your assets cannot be taken without a court judgment, the lender can hire a debt collector and reach out to the credit bureaus (TransUnion, Equifax, Experian) to list your delinquent payment status on your credit report. Examples of unsecured debt include medical bills, payday loans, student loans, and court-ordered child support.

Secured Debts

This type of debt is backed or tied to an asset as collateral. This is done to minimize the risk that can come with lending. Examples include mortgages, auto loans, and title loans. If you fall behind or default on payments, a lender can repossess or foreclose on the asset. If this occurs, the asset is sold at an auction to cover the costs. So what happens if the amount obtained for the asset does not cover the asset’s cost? The lender might pursue you for the remaining balance of the debt.

So, Why Won’t My Medical Debt Show Up On My Credit Report?

In March 2022, the nation’s three major credit bureaus made the announcement that they are changing how they include medical debt in a consumer’s credit history. According to BusinessWire, Equifax, TransUnion, and Experian, medical collection debt below $500 will stop being reported. With the removal of close to 70% of medical debt being removed, many people will see a change in their reported score. However, you will still need to tell your attorney about this debt if you are considering bankruptcy.

So, how will this influence your bankruptcy? Knowing your unsecured and secured debts is important for your bankruptcy. If you do not include all the information in your bankruptcy, you may run into problems later. But, most courts will discharge or get rid of your unlisted debt. However, in some areas, the missing creditor can be considered a “defrauded creditor” and may be able to reopen your case to receive payment for the unlisted debt. Speak with your attorney if you have any concerns about a missing debt for your case.