The Complete Guide To Medical Bills and Wage Garnishment

If you have unpaid medical bills, you aren’t alone. The total amount of medical debt in collections in the U.S. is somewhere in the range of $81 billion to $140 billion, according to a Consumer Financial Protection Bureau report from 2022.

If you don’t make a plan with the medical billing office to repay your debt, you may be at risk of serious debt collection measures like wage garnishment. Filing for bankruptcy stops wage garnishment, but it’s important to do your research before you make your next move. This article can help.

Can Hospitals Garnish Wages for Unpaid Medical Bills?

Yes, hospitals — even nonprofit hospitals — have the right to sue patients for unpaid medical bills. This can result in a court order for wage garnishment.

Though healthcare is a necessity, it’s treated like any other consumer good or service in the U.S. Medical care costs, and the resulting debt, can add up fast.

If you don’t pay your healthcare bill, the hospital will use the same debt collection tools other types of creditors use to collect these debts. This includes calling you, sending you notices in the mail or via email, and other forms of contact. The hospital may even enlist a collection agency to help collect the debts.

A lawsuit is often a last resort since suing people takes time and money. Even so, a medical facility or collection agency may choose to bring legal action to recoup unpaid medical bills. 

This is why it’s important to be proactive in addressing your medical debt. You can take control of your medical bills and work with the hospital before the situation escalates. For example, you can try to work with the hospital outside of court to negotiate a settlement or set up a payment plan.

What Is a Wage Garnishment?

A wage garnishment is a debt collection tool. 

Most wage garnishment challenges start when a creditor sues a customer for nonpayment. When it comes to medical debt, the creditor is the hospital, medical facility, or healthcare provider that is billing you for services. The “customer” is the person who received those services.

If a medical provider sues you for an unpaid medical bill and wins the case, it can get a court order called a judgment, which allows the provider to take money directly from your paycheck to put toward the debt. This is the wage garnishment order. It’s sent directly to your employer.

Having your wages garnished can leave you with little or no disposable income and make life stressful. Thankfully, federal law limits how much money a creditor or debt collector can take from your paycheck. There are also ways to stop wage garnishment. 

Why Is a Debt Collector Calling About Unpaid Medical Bills?

It’s fairly common for hospitals to turn unpaid medical bills over to a third-party debt collection agency. It may seem intimidating to be contacted by a debt collector, but federal and state laws protect you from harm and harassment. 

The Fair Debt Collection Practices Act (FDCPA) is a federal law that applies to most third-party debt collectors. Under the FDCPA, debt collectors must validate the debt and advise you of your right to dispute it. 

If a debt collector violates the FDCPA, you can use this as a defense if they bring a debt collection lawsuit. 

You Can Defend Yourself in a Medical Debt Collection Lawsuit

Getting served with a court summons and paperwork notifying you of a lawsuit can feel intimidating. Most people believe that hiring a lawyer is necessary to fight a lawsuit. But you can file the required paperwork to respond to the lawsuit on your own (or with free or low-cost legal help available through legal aid in your community). If you’re already struggling with medical debt, chances are that you can’t afford to hire a lawyer to help you. With some time and effort, you can fight the lawsuit.

This starts by filing an “answer” to the court summons by the deadline listed in the summons. An answer is an official court document that lets the court and the party suing you know that you intend to participate in the lawsuit. You can learn more about how to do this in our article How Do You Answer a Summons for Debt Without an Attorney?

By filing the paperwork on time and showing up to any scheduled court appearances, you’re giving yourself a fighting chance.

What Happens if You Ignore the Lawsuit?

Not responding to a medical debt collection lawsuit virtually guarantees that the debt collector will win and be granted a default judgment. This opens up the avenue to debt collection measures, including garnishing your paycheck, putting a levy on your bank account (to take funds directly from it), or putting a lien on any property you may own.

Hospitals Can’t Garnish Your Entire Paycheck, Even if It Wins a Debt Collection Lawsuit

Even with a garnishment order, federal law and some state laws limit how much a creditor (including hospitals and medical facilities) can take from your paycheck. The amount of income that a creditor can garnish is based on an employee's “disposable earnings.” This is the amount left after legally required deductions are taken from your paycheck.

Even if a hospital, credit card company, or other creditor wins a judgment, it can only garnish so much of your income. Federal law sets the limit at 25% of your income, or the amount you earn that is 30 times the federal minimum wage (currently $7.25/hour), whichever is less.

Some Types of Income Are Exempt Altogether From Garnishment

Certain types of income, such as Social Security benefits, are protected from most debt collectors, including medical debt collectors. Creditors may not garnish any portion of Social Security income. If you have different forms of income, it’s a good idea to keep exempt income in a separate bank account. Doing so makes it easier for you to show what funds are exempt from garnishment.

Keep in mind that the IRS may collect debts for back taxes by keeping your tax refund or even taking Social Security benefits. If you have unpaid student loans, alimony, or child support, your Social Security benefits may be garnished by the government but may not be garnished for the purposes of repaying “private” debt.

You May Be Able To Avoid Wage Garnishment Altogether

Having overwhelming medical debt (or other debt) can lead to feelings of hopelessness and helplessness. The emotional distress is real, and you may be able to tackle that and the debt head on by looking into your debt relief options. 

A great place to get started is by setting up a free appointment at a credit counseling agency. Nonprofit credit counselors are there to help you make a plan to tackle your debt. They may be able to help you:

• Set up a repayment plan with the hospital

• Put you in touch with resources at the hospital or in the community to reduce your debt

• Set up a debt management plan to help address all your debt and streamline the repayment process

• Decide if bankruptcy is the right option for you

You can also look into debt settlement, where you offer a lump-sum payment that’s less than the total amount you owe in order to clear the debt. Of course, many people in debt don’t have a large sum of money just lying around to negotiate with, but this may be a good option if you come into a windfall through a tax refund or inheritance.

A Note About the No Surprises Act

The No Surprises Act took effect Jan. 1, 2022, and safeguards patients from getting unexpected medical bills that can increase the financial hardship caused by medical debt. The No Surprises Act includes provisions for people who have health insurance and for those who do not.

The act requires healthcare providers to offer a "good faith" cost estimate before treatment for those who are uninsured or choose not to use their health insurance. If the final bill exceeds this estimate by $400 or more, individuals can dispute the charges through the patient-provider dispute resolution process.

For individuals with health insurance, the act provides protections against surprise out-of-network bills.

Filing Bankruptcy Stops Wage Garnishment Fast

Filing bankruptcy has gotten a bad reputation, but it’s a right outlined in the U.S. Constitution. If you can’t see a way out of your debt, bankruptcy may be able to give you a fresh start and a new lease on life. 

It comes with some powerful protections, including the automatic stay. As soon as you file your case, the automatic stay goes into effect and all collection actions against you must stop. This includes wage garnishment. Filing bankruptcy can also clear existing court judgments for an unpaid medical debt. 

Though bankruptcy isn’t the right option for everyone, it’s used more than you might think. Over 380,000 people filed bankruptcy in 2022. According to a study done by Ascend, the top reasons people filed for bankruptcy were high interest rates, inflation, and income reduction/job loss. 

Upsolve has created a free web app to help people file Chapter 7 without the expense of a bankruptcy attorney. If you prefer to get legal advice, you can also schedule a free evaluation with a bankruptcy attorney.