Court Ruling Brings Medical Debt Back to Credit Reports—Here's How to Keep It From Ruining Your Finances

Forbes

17-07-2025

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Unpaid medical bills are back on the table, which could mean lower credit scores for millions.
A federal judge in Texas has struck down the Consumer Financial Protection Bureau's (CFPB) new rule that would have removed medical debt from consumer credit reports, dealing a blow to millions of Americans and reshaping how creditworthiness is assessed.
The rule was scheduled to take effect later this year, and the CFPB estimated it would have lifted credit scores by an average of 20 points for nearly 15 million people. Now, with the rule invalidated, unpaid medical debts will remain visible to lenders, landlords and even some employers who use credit scores in their application processes.
'It could reverse a lot of recent progress,' says Zachary Schulz, senior lecturer and historian of medicine and public health at Auburn University. 'If those debts are now allowed back on, we could see credit scores drop again, especially for people already on the margins.'
The ruling affects not only credit reports but also the reach of the CFPB itself.
'This ruling is significant,' adds Jeremiah Heck, a consumer protection attorney in Ohio and founding partner at Luftman, Heck & Associates. 'The court essentially said that decisions about what can or can't appear on credit reports are beyond the CFPB's current reach; at least without clearer direction from Congress.'
Some argue that removing medical debt from credit reports could harm consumers in other ways, according to an April 2025 report from the Congressional Research Service (CRS), authored by Karl E. Schneider.
Even if medical debt is removed from credit reports, the debt still exists, and more patients might stop paying their bills. To compensate for the loss, hospitals could raise prices by increasing copays and deductibles.
One industry report estimates that hospitals could lose $24 billion in just the first year, which could hurt small and rural hospitals the most. Debt collectors also expect to lose about 8% of their yearly income because of the change.
Opponents of removing medical debt from credit reports argue that without the leverage of credit reporting, collectors may rely more heavily on lawsuits to recover unpaid bills.
But while some worry about how removing medical debt from credit reports might affect collections, others say the real issue is how unfair medical debt often is in the first place.
Unlike credit card or mortgage debt, medical debt is rarely voluntary. A sudden injury, surprise bill or an insurance denial can throw families into financial distress overnight.
'People don't choose to get sick,' says Schulz. 'Billing errors and opaque pricing are rampant. Using it as a marker of risk just reinforces inequity and penalizing people not for irresponsible spending, but for needing care.'
Heck echoes this sentiment: 'Many medical debts sent to collections stem from insurance delays or disputes, not from someone refusing to pay.'
Leslie Tayne, Esq., founder of Tayne Law Group, adds, 'Taking care of one's medical needs is an act of survival. Judging someone's creditworthiness on that basis isn't financially sound.'
Historically, medical debt has played a contentious role in credit reporting.
Before the now-overturned rule, major credit bureaus had begun removing some medical debts , particularly paid collections and those that were less than a year old. But even with reforms, unpaid medical debt remains the leading cause of consumer credit damage.
Now that medical debts can legally remain on reports, experts say consumers will feel the hit.
'Unpaid medical debts over $500 can continue to show up on reports and bring down credit scores,' Heck explains. 'That affects everything—mortgage approvals, interest rates, even job applications.'
Kevin King, vice president of credit risk at LexisNexis Risk Solutions, notes that the impact could be especially harsh for consumers already struggling: 'Older individuals, manual laborers and low-to-medium income consumers—especially those facing resumed student loan payments—will be disproportionately affected. This could broaden the gap between the 'credit haves' and the 'credit have-nots.''
While some see value in more accurate financial profiling, the implications are stark.
'This presents another challenge in a string of recent credit stressors,' King adds. 'Lenders won't be reducing criteria anytime soon, and more people will fall below the threshold for affordable credit.'
Even those with insurance may suffer. 'It may be a billing code error or an insurer denial—but once it hits your credit, it's treated the same as skipping a car payment,' says Tayne.
Despite the setback, some federal safeguards remain in place. The Fair Debt Collection Practices Act (FDCPA) prohibits harassment and requires validation of debts. Meanwhile, the Fair Credit Reporting Act (FCRA) lets consumers dispute inaccurate or duplicate debts.
'The FDCPA and FCRA still offer recourse,' Tayne says, 'but consumers will likely find stronger protections at the state level or through individual planning.'
Heck agrees: 'Without the CFPB rule, more of the burden now falls on individuals to monitor their reports and take action.'
If you're struggling with medical debt, check whether your state, county or city offers assistance programs.
Many do, and you may qualify without even realizing it. Contact your state's Department of Health, local health department or consumer protection office to find out what support is available in your area. You can also visit UndueMedicalDebt.org to see if your community partners with national relief efforts.
On July 16, Arizona Governor Katie Hobbs announced that $429 million in medical debt had been erased for more than 352,000 Arizonans. This initiative, a partnership with the national nonprofit Undue Medical Debt, aims to improve economic stability and health outcomes.
'Economic stability is core to the Arizona Promise,' said Hobbs in a press release. 'Medical debt deprives our fellow Arizonans of their basic dignity, prevents our families and neighbors from living happy and productive lives and endangers the Arizona Promise. By erasing debt for hundreds of thousands of people across our state, we are creating pathways to economic security and empowering them to realize their full potential.'
Last year, Arizona set aside funds from the American Rescue Plan Act (ARPA), a COVID-era U.S. stimulus and relief package, to support up to $2 billion in debt relief. There's no application process. Residents who earn up to 400% of the federal poverty level or owe more than 5% of their income on medical bills may qualify. Eligible individuals receive a branded letter from Undue Medical Debt notifying them of the relief.
Arizona joins a growing list of jurisdictions leveraging ARPA funds to assist with medical debt, including California, Connecticut, Illinois, Michigan, New Jersey and Pennsylvania—along with Washington, D.C. and 19 cities and counties.
Whether you have medical debt or not, experts say vigilance is key.
'Pull your credit reports and dispute any billing errors,' advises Josh Richner, debt relief specialist and founder of FaithWorks Financial. 'Medical billing errors are among the most common reporting inaccuracies.'
Richner also recommends asking for hospital charity care every time you need it.
'Even if you don't think you qualify, it's worth the ask,' he says. 'Non-profit hospitals are required to offer financial assistance, and income thresholds can be more generous than expected.'
If you do owe, don't panic. 'Work with the billing department to negotiate a lower payment,' Richner advises.
Tayne also suggests planning proactively: 'If you're on a fixed income, make sure to understand state protections. Some states limit wage garnishment, and others provide resources for negotiating bills.'
Above all, Schulz urges a shift in mindset: 'Medical debt shouldn't define your financial future. But now more than ever, consumers will need to advocate for themselves—and push lawmakers to close the gaps.'
Below are additional strategies that may help you pay off your medical bills. Set up a payment plan . Many providers offer low- or no-interest payment plans that break up your balance into manageable monthly installments.
. Many providers offer low- or no-interest payment plans that break up your balance into manageable monthly installments. Negotiate costs directly. Billing errors and inflated charges are common. Request an itemized bill and propose a fair payment, such as the amount Medicaid would cover.
Billing errors and inflated charges are common. Request an itemized bill and propose a fair payment, such as the amount Medicaid would cover. Shop for affordable health insurance . If you don't qualify for public assistance, compare ACA marketplace plans to find lower-cost options. We analyzed top-rated ACA plans to help consumers find the most affordable coverage.
If you don't qualify for public assistance, compare ACA marketplace plans to find lower-cost options. We analyzed top-rated ACA plans to help consumers find the most affordable coverage. Research debt consolidation loans . These can reduce your overall monthly payments or interest rate, but shop carefully to ensure you're getting the best deal. Choosing the wrong lender could make things worse.
These can reduce your overall monthly payments or interest rate, but shop carefully to ensure you're getting the best deal. Choosing the wrong lender could make things worse. Seek financial counseling. A nonprofit credit counselor can walk you through your options, negotiate on your behalf or help you plan for bankruptcy if needed.
A nonprofit can walk you through your options, negotiate on your behalf or help you plan for bankruptcy if needed. Check for income-driven hardship programs . Nonprofit hospitals are required to offer financial assistance based on income; ask about hardship or charity care.
. Nonprofit hospitals are required to offer financial assistance based on income; ask about hardship or charity care. Explore nonprofit aid organizations. Groups like the Healthwell Foundation or PAN Foundation may help with treatment costs or prescriptions.
Avoid putting medical debt on your home.
Using a HELOC or home equity loan can be a great tool if you're using it to renovate your home (it adds value and is tax-deductible). However, using a HELOC or any other loan that requires your house as collateral to pay off debt can make the situation worse. If you fall behind, you could lose your home.
Also, don't agree to payment terms you can't afford. Be upfront with your provider about what you can afford.
The ruling also opens the door for more aggressive collections.
'If credit reporting is back on the table, collectors have one more powerful tool to pressure patients,' Schulz warns. 'It may embolden more aggressive tactics—wage garnishment or court judgments could come faster.'
Richner confirms this: 'From a collection standpoint, not much changes. Medical debt can still lead to lawsuits. If a judgment is entered, consumers could face wage garnishment, bank levies or even liens on property—all with lasting damage to their credit profile.'
Tayne adds that garnishment rules vary by state but remain legal in most, and the statute of limitations also differs depending on jurisdiction.