Medical Debt and Foreclosure: Understanding Your Rights

An unpaid medical provider can't just seize your house at will.

It's possible to lose your home because of an unpaid medical bill, but it's unlikely. Unlike a home loan company, a medical creditor doesn't have a mortgage secured by a claim on your house. That makes it much harder to foreclose to collect what you owe. A creditor who follows all the legal requirements, however, could make it happen.

Getting a Judgment

The first step doctors and other creditors usually take is to send a past due letter. A creditor doesn't usually undertake the next step -- going to court -- unless it's clear you won't or can't pay. The creditor files a suit, notifies you of the suit, then presents her case at the hearing. You get a chance to present your own side if you disagree. If the judge decides you owe the money, she rules for the creditor. It doesn't matter whether you can pay: The judgment is based on what you owe, not what you can afford.

Placing a Lien

Once a hospital or medical practice wins a court judgment, it can use that to seize some of your assets. Depending on state and federal law, a court judgment may empower a creditor to garnish some of your wages or your bank account. It may also be able to place a lien on your property. If you ever want to sell or refinance, you'll have to remove the lien first. That gives your creditor confidence you'll have to pay up eventually.

Foreclosure Obstacles

Anyone with a lien on your home can file to foreclose. Creditors with a judgment lien rarely take that step, though. No matter which creditor files to foreclose, liens are paid off in the order of seniority. If there's a mortgage, for instance, the mortgage holder gets paid from the foreclosure sale before any other lien holders. If state law exempts any of the home's value from foreclosure, the creditor won't see that money either. It's usually more cost effective for a creditor to wait than foreclose.

Removing Liens

If you can find the money, the simplest way to remove a judgment lien is to settle the debt. Another option is to wait for the lien to expire. States can limit how long a judgment lien lasts; in New York a lien expires after a decade, for instance. If you're forced to file for bankruptcy, you may be able to "avoid" the lien if there's not enough equity in your house to pay off the mortgage and the judgment lien. Otherwise, the lien may survive bankruptcy, the Moran Law Group says.