In a significant shift for consumers, New York has implemented a new policy that no longer allows medical debt to be included on credit reports. This change, effective as part of nationwide reforms, offers welcome relief for many New Yorker's who have struggled with medical debt negatively impacting their credit scores. While this is undeniably good news for consumers, it has created a ripple effect that may lead to an unintended consequence: an increased likelihood of being sued by debt collectors. With fewer avenues to pursue, debt collectors may now turn to lawsuits as a primary means of recovering medical debts.

The Positive Side: Medical Debt No Longer Hurts Your Credit Score

Medical debt is one of the most common forms of debt in the United States. A sudden illness, accident, or surgery can result in overwhelming medical bills, even for those with insurance. Historically, unpaid medical debt would appear on credit reports, often damaging credit scores for years and making it harder for individuals to secure loans, housing, or even employment.

However, recent reforms have brought relief to many. As part of a broader initiative by the three major credit bureaus—Equifax, Experian, and TransUnion—medical debt under $500 is no longer reported on credit reports. This change, which took effect in July 2022, was implemented in recognition of the unique nature of medical debt, which often arises from circumstances beyond a person’s control. Furthermore, any medical debt that has been paid or settled in full is removed from credit reports. For New Yorkers, this means that their credit scores are no longer negatively affected by most medical debts, allowing for better financial opportunities.

Why You May Be More Likely to Be Sued by Debt Collectors

While removing medical debt from credit reports is a significant win for consumers, it also leaves debt collectors with fewer tools to recover unpaid bills. In the past, the threat of damaging a consumer’s credit score was often used as leverage to encourage payment. Now, with this tool off the table, debt collectors may resort to more aggressive tactics, including filing lawsuits, to recover unpaid medical bills.

Here’s why you may now be more likely to face a lawsuit over medical debt:

1. Loss of Credit Reporting as Leverage

Previously, the inclusion of medical debt on credit reports served as a powerful incentive for consumers to settle their debts. Many people would prioritize paying off medical bills to avoid a negative mark on their credit reports, knowing it could affect their ability to obtain credit cards, mortgages, or even rent apartments. With medical debt no longer being reported, debt collectors have lost a key tool that once gave them leverage in negotiations.

Without the option to report the debt to credit bureaus, collectors may instead choose to escalate the situation to legal action. Lawsuits are a much more direct method of debt collection, and while they require more effort and expense for the debt collector, they can lead to significant financial consequences for the consumer if successful.

2. Increased Lawsuit Threats

Debt collection lawsuits are already a common tactic used by collectors, and the number of lawsuits may increase as a result of the new rules. When a debt collector sues, they are seeking a court judgment that forces the debtor to pay what is owed. If they win the lawsuit, the court can authorize the collection of the debt through wage garnishment, bank account levies, or even property liens, depending on the state’s laws.

In New York, a court judgment can result in up to 10% of a person’s wages being garnished to satisfy the debt. This makes lawsuits an attractive option for debt collectors looking to recover medical bills that they can no longer report to credit bureaus.

3. Lack of Awareness Among Consumers

Many consumers are unaware of how medical debt is handled differently from other types of debt. Without the pressure of a negative credit report entry, some may assume that they don’t need to prioritize medical bills. However, failing to pay medical debt can still have serious consequences, including lawsuits. The misconception that unpaid medical bills are less harmful could lead to more people being caught off guard when they are served with a lawsuit.

What to Do if You’re Sued for Medical Debt

If you’re sued for medical debt, it’s essential to take the situation seriously and respond promptly. Ignoring the lawsuit can result in a default judgment against you, which allows the creditor to pursue aggressive collection actions like wage garnishment or levying your bank account.

Here are steps you can take to protect yourself:

1. Review the Lawsuit

When you receive a notice of the lawsuit, carefully review the details. Ensure that the debt is legitimate and that the amount claimed is accurate. Medical bills can sometimes be sent to collections in error, or there may be discrepancies in the amount owed. If you believe there is a mistake, you have the right to dispute the debt.

2. Seek Legal Assistance

If you are unsure how to handle a medical debt lawsuit, consider seeking legal advice. Many legal aid organizations offer free or low-cost assistance to low-income individuals facing debt-related lawsuits. An attorney can help you understand your options and potentially negotiate with the debt collector on your behalf.

3. Negotiate a Settlement

In many cases, debt collectors are willing to negotiate a settlement to avoid the cost and time of going to court. You may be able to negotiate a reduced payment or a payment plan that works within your budget. Be sure to get any settlement agreement in writing and keep a copy for your records.

4. Know Your Rights

Under federal and state laws, debt collectors must follow certain rules when pursuing a debt. They cannot harass or threaten you, and they must provide accurate information about the debt. If you believe a debt collector has violated your rights, you may be able to file a complaint or take legal action.

Conclusion

While the removal of medical debt from credit reports is a positive step forward for consumers, it does not eliminate the possibility of facing legal action for unpaid medical bills. With debt collectors losing a key tool for recovery, lawsuits may become a more common tactic. It’s important for consumers to be aware of this potential risk and take steps to address medical debt before it escalates to legal action. Understanding your rights and knowing how to respond to a lawsuit can help protect your financial future.