THE BLOG
05/28/2013 02:52 pm ET Updated Jul 28, 2013

Is Debt Settlement Possible for Hospital Bills I Could Not Afford?

Huffington Post Reader Question

Dear Steve,

One of my children experienced a medical condition in the fall of 2012 that required hospitalization.

Unfortunately, with deductibles and co-pays the out-of-pocket costs were beyond my resources to cover in a time satisfactory to the medical providers. Consequently, my account has been sold/turned-over to a collection agency. I should add that I had a short-sale of my last house in early 2012.

I am now in a better economic position and can afford to make payments on this medical debt. I know my credit score has already been hit.

I have heard that sometimes you can go back to the original creditor and arrange a payment with them and avoid many of the fees the collection agency tacks on.

I have also heard that it is better to settle with the collection agency. I was wondering if I settle whether I could get them to note my credit file as Paid as Agreed versus Settled for Less than Agreed. I'm not sure what the best thing to do is.

Kevin

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Answer

Dear Kevin,

Just because a collection company is attempting to collect on a debt does not mean they are a third-party collector. These days they may have purchased the bad debt.

There is nothing that prevents you from calling the original creditor and asking them if they still own the debt and who they prefer you deal with.

In my experience relatively few will recall it if it is placed with an outside collection company under contract.

Ultimately it really does not matter which entity you settle with as long as you get the proper agreement and documentation. The last thing you would want to do is make payments based on a verbal agreement alone.

You should read this to understand all the pros and cons of debt settlement before you begin.

If the account is still owned by the medical providers your credit report should show a listing by the original provider and an entry that it is in collections. Collection companies will sometimes agree to pay to delete but only their entry. It will still show the history with the original creditor. Frankly, I don't think it's a game worth worrying about or playing.

On you credit report it will show that part of your debt that you paid, as paid, and with the delinquent history. The part of the debt forgiven in the settlement will show as written off as a bad debt.

Sure, you credit takes a hit, but it already did that when you went delinquent. The delinquent account will appear on your consumer credit reports for seven years before removal. But the fact is the more time that passes from the satisfied collection activity and the more other unsecured accounts in good standing that are reporting, the faster your score will bounce back.

Bad credit is actually stupid easy to repair and deal with.

Depending on your financial condition you might want to talk to the hospital about their policy on debt forgiveness based on income. Many people are unaware that hospitals and some providers will forgive bills if people qualify for their own forgiveness programs.

If you do decide to settle the debts once you identify which party the original creditor wants you to work with, make sure you do these things.

  1. Get the settlement offer in writing before you make payment.
  2. Make payment by some sort of traceable means to prove you paid.
  3. Keep the settlement agreement and the proof of payment with your other important papers and never lose them.
  4. Focus on cleaning up your credit and get back to being able to pay bills on time.

I'm so glad to here you child is apparently doing better. At least that's good news.

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