The Intersection of Personal Injury Cases and Medical Debt: A New Era of Financial Relief

Personal injury victims from auto accidents, slip and falls, and other personal injury accidents often face a challenging financial predicament during their legal battles. Their case takes time! While our firm is seeking justice through compensation from insurance companies, our clients are having to navigate treatment and a complex landscape of medical bills, collections, and potential credit damage.

However, a recent rule change by the Consumer Financial Protection Bureau (CFPB) promises to alleviate most of these burdens. First, I want to go over some of the traditional challenges our clients face and then cover the CFPB’s new solution that’s set to transform the personal injury litigation landscape.

The Wait for Settlement: A Financial Tightrope

Our firm We Win Injury Law handles a wide variety of personal injury cases that range from minor car accidents and limited medical treatment to cases that end up in a lawsuit that can take years. Because these cases can be protracted affairs, sometimes taking months or even years to reach a settlement or jury verdict. During this time, our injured clients are often dealing with mounting medical bills from various providers.

While some medical professionals who frequently work with our office, such as chiropractors, imaging centers, and pain management specialists, are willing to operate on a lien basis, many others are not. It puts our clients in the impossible situation having to decide between getting the medical treatment they so desperately need to heal, while also confronting the high cost of medical bills.

The Lien System: A Partial Solution

Under a lien agreement, the medical providers we work with agree to defer payment until the case settles or reaches a jury verdict. These medical providers are essentially betting on the success of the attorney’s negotiations or success in a lawsuit. In some respects, this is a good thing because the medical provider has to evaluate their treatment within the confides of the available insurance limitations, the strength of our client’s case, and the treatment’s relation to the accident. These lien arrangements can be a lifeline for our We Win Injury Law injured clients, allowing them to receive necessary treatment without immediate financial strain. They do however contain a caveat, if the case does not settle or reach a jury verdict, the client is still responsible for the medical debt. This is one reason most lien providers will not work on a lien with clients who do not use experienced personal injury attorneys with a successful track record.

The Challenge with Non-Lien Providers

What makes matter worse, not all medical providers are willing to work on a lien basis. Our  law firm We Win Injury Law works with a wide variety of medical providers, but there are some who simply refuse to work on a lien basis. They are typically crucial services our clients need such as ambulance transport, hospital care, and specialized treatments from surgeons, who often require immediate payment, or prior payment. This creates a significant problem for personal injury victims who may not have the means to pay these bills out-of-pocket while their case is pending. Often times it put our office in the worse position than the lien medical providers. They only had to offer treatment with the prospect of being unpaid, where our law firm would have to advance these costs to stave of collections and damage to our client’s credit.

The Threat of Collections and Credit Damage

Prior to the new CFPB rule, the specter of medical bills going to collections loomed large over our personal injury clients. If the medical bills remained unpaid, they would receive notices that their bills were being sent to collection agencies, with warnings about these medical bills potentially causing severe damage to our client’s credit score.

The Ripple Effect of Credit Damage

Our clients having a lowered credit score due to medical collections could potentially have very negative consequences, including:

1. They would have difficulty obtaining loans or credit cards.
2. They would have higher interest rates on future borrowing.
3. They would have challenges in renting apartments or even securing employment.
4. They would have additional financial stress during an already difficult time recovering from their injuries.

The Attorney’s Dilemma

Faced with the potential for our clients’ credit to be impacted, our office often felt compelled to advance costs to cover urgent medical bills. This practice, while beneficial to clients, placed a significant financial burden on our law firm, and realistically was just not feasible, the amount of medical bills to extend on credit was impossible. In fact, it had the potential to create real ethical concerns regarding financial entanglement with clients, choosing to settle for something sooner rather than settling or negotiating for the top amount.

The CFPB’s Game-Changing Rule

On January 7, 2025, the CFPB finalized a groundbreaking rule that promises to alleviate many of these concerns for our personal injury clients. Let’s dive in to the key provisions of the new rule:

First, there is a ban on medical debt reporting. The new rule prohibits consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders.

Second, there is a prohibition on lenders considering the medical debt. Creditors are now broadly prohibited from obtaining or using any medical information, including medical debt, for credit eligibility determinations.

Impact on our Personal Injury Clients

This new rule effectively removes the threat of credit damage due to unpaid medical bills during the pendency of our clients’ personal injury case. The implications for our clients are significant. First, it reduces the financial pressure clients had to settle their cases sooner because of the fear of immediate credit repercussions if they couldn’t pay their bills until the case settles. Second, our clients can focus on their physical recovery without the stress for potential credit damage. Third, the burden on attorney to advance the costs will now be limited to cases where pre-payment is required, which is often surgeries. Lastly, it gives our office more time to negotiate higher settlements because there is less pressure to settle sooner to avoid credit damage.

Looking Ahead: Potential Challenges and Considerations

While the new CFPB rule offers significant relief to our clients, it’s important to note that it faces legal challenges from industry groups. These groups have a lot of pressure and lobbying that could dilute the rule over time. Additionally, our personal injury clients should still be aware that:

1. Unpaid medical providers can still pursue other collection methods, such as court proceedings and garnishments, even if they can’t report to credit agencies.
2. The rule does not eliminate the underlying medical debt or the obligation to pay for medical services received.
3. Some aspects of medical debt may still be considered in specific lending situations, such as when applying for a medical-specific loan.

Final Thoughts:

The CFPB’s new rule on medical debt reporting represents a significant shift in the personal injury landscape for our clients. By removing the threat of credit damage due for unpaid medical bills, it provides our clients with much-needed financial protection while their case is proceeding. While challenges remain, these change promise to alleviate one of the most pressing concerns for our personal injury clients and for our firm. We believe this will allow for a more focused and less financially stressful personal injury process.

As the legal community adapts to this new reality, it’s crucial for both attorneys and clients to stay informed about the implementation and potential modifications of this new rule. With this change, the path towards justice in personal injury cases for our clients may become a little less burdened by financial and credit worries, allowing our clients to focus more on achieving the most fair and just outcome possible.