How to settle a medical bill?

Question

I'm self-employed, so I didn't have health insurance when I was in an automobile accident. Months and several operations later, I owe over $250,000 in medical bills, but I only make $70,000 per year. What can I do? The collections agents for the hospital have said that there is no way to get rid of medical debts.

Answer

For one thing, you could file for bankruptcy, and in your situation, that may ultimately be your best option. Notwithstanding what the collections agents said, you can discharge medical debts in bankruptcy. Debts to doctors and hospitals are unsecured debts, no more sacred, or given any greater priority or protection, than debts to credit card issuers or retail stores. (There are debts that you can't easily discharge in bankruptcy, such as alimony, student loans, child support, and taxes—but medical debts aren't among those.)

However, before filing bankruptcy, you should explore whether you can settle the medical bills for an amount that you could pay. Doing so will allow you to avoid the downside or costs of bankruptcy while protecting your credit rating and honoring your obligations.

Debt settlement is simply negotiating with creditors to accept less than full payment as payment in full. It is voluntary on the part of creditors, but they will often agree to do so if it looks like what they're being offered is the most they could possibly recover. Therefore, laying out your financial situation for creditors, to show what it is you could afford to pay, is a key part of debt settlement.

You should identify what you owe to each creditor—you have to negotiate with each doctor, each hospital, each lab, etc. separately. Identify your other costs and obligations (such as rent or mortgage), your income, and your assets. Work up a proposal to pay your creditors as much as possible, either upfront or over the shortest reasonable time. Then contact them, and lay the situation out in front of them.

Given the size of your debt, you would be well advised to speak with an attorney. A lawyer can advise you as to the desirability of bankruptcy as an option. The lawyer can also negotiate with creditors on your behalf, drawing on his or her negotiating experience and also add weight to your position by letting creditors know if a settlement can't be reached, bankruptcy is on the table as an option.

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