Medical bills and debt collector await you

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Dear Debt Adviser,
I have medical bills from February 2003 when I didn’t have health insurance. It went into collections in May 2003 and a judgment was filed in November 2003. Initially, the debt was only about a thousand dollars and I had tried paying what I could on it, but it wasn’t enough to keep me out of collections.

Now the medical bills are ridiculously high after a collection agency got a hold of it, and with fees, taxes and interest, it is now upward of $4,000. I have been paying $50 a month on it for the past year or so, but that barely paid anything off the principal! And now to make matters worse, I am unemployed and haven’t worked full time in more than a year. I am currently enrolled in school but still haven’t worked.

I recently told the agency that I could no longer afford the monthly payment as I am unemployed and can only afford necessities. I don’t know what to do anymore. What are my options? Do I have any? Any advice on this matter would be greatly appreciated. I can’t afford to see an attorney about these kinds of things and I really need some guidance.
— Gina

Dear Gina,
Yes, you have some options. They are not the options I wish you had, but they should get you to the other side of this mess even though it won’t be easy. The obvious first option is whether a bankruptcy makes sense in your situation. I don’t advise it. You owe too little and have too bright a future ahead after your schooling is finished to take on a 10-year, credit report handicap that will complicate your future access to credit, career choices, job-hunting prospects, insurance and housing opportunities. Still, the bankruptcy option is there if you feel you need it.

You are absolutely right that while unemployed you have no money to pay on your medical bills. I suggest that you consider the “you can’t get blood from a stone” option. Rather than making a small monthly payment that will not satisfy the debt collector but merely further strain your tattered finances and your nerves, I suggest that for the time being you stop making payments.

The collector knows that even with a judgment in its favor, without income or a hard asset like a home, the judgment cannot be used to garnish wages or place a lien on your property. So, they will have no choice but to wait until you do have income. Don’t make the mistake of thinking that the debt collector will forget about your medical bills or that it will wait patiently. The collector is also unlikely to stop asking you for the money.

So, until you find a job, I suggest that you write to the debt collector and let them know you plan to pay what you owe, but you must first find a job. Tell them not to contact you again about this debt, but you will be back in touch once you are back on your feet. Do this in writing and they will have to stop calling you.

Once you find a job prospect that looks like it might come through and if the employer checks credit reports as part of the hiring process, my recommendation is to be up front about your debt issue. I suggest you tell them that there are outstanding medical bills on your credit report and that you intend to pay it as soon as you get some income. This will answer an often unasked question that comes up when an employer reviews a credit report. By bringing up the subject, you will answer any concerns about your reliability and whether you’ll be distracted at work by financial problems.

When you begin earning money, I further suggest you consider waiting until you have saved enough money to pay the debt you owe or to at least make a reasonable settlement offer — 50 percent to 60 percent of what you owe — before getting back in touch with the debt collector to make an offer or to restart payments. Whether you opt to try to settle or repay your medical bills in full, be sure to get all agreements in writing.

Good luck!

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