How a Car Accident Can Wreck Your Credit

Imagine you’ve been in a car accident. You have health insurance as well as coverage for medical bills through your auto insurance — or through the policy of the person who was at fault — so you aren’t worried about the bills. But to your shock, you find out months later that some of your medical bills have been turned over to collections and your credit has been damaged.

How can that happen?

There are several reasons why this scenario — which is not uncommon, unfortunately — occurs. The first is that auto insurers typically don’t pay medical bills as you incur them, but rather wait until all the bills related to the accident come in. In the meantime, your health care providers don’t want to wait months — or even years — for your claim to be paid. Unpaid balances are turned over to a collection agency.

The second is that medical providers are often reluctant to bill your health insurance, which may pay negotiated rates that are less lucrative than payments from an auto insurance settlement.

There are ways, however, to decrease the odds that these bills will wind up in collections and ruin your credit. Here’s how.

Insist on Using Health Insurance First

The first thing you may want to do is to ask the medical provider to bill your health insurance. (Of course, whenever possible you want to use a provider that participates in your health insurance network since that usually means lower out-of-pocket expenses.) If they say they won’t or can’t do that, you may need a lawyer or health plan administrator to intervene.

“Legally, they should not [refuse your health insurance] — they are obligated to honor your health insurance for all treatment you need, and there is no guarantee that you will even get compensation for your injuries,” personal injury lawyer Thomas J. Simeone with the law firm Simeone & Miller, explained in an email. “However, they know that they will likely receive more from an injured person’s personal injury claim than from health insurance, so they refuse the health insurance.” As a result, he says, “outstanding balances with medical offices can build up quickly and medical offices can damage your credit by sending your file to a collections agency or even filing suit.”

Since just one collection account can lower your credit score by 50, 75, or even 100 points or more, it is essential that you stay on top of these bills and, just as important, your credit. You can monitor your credit data monthly for free on Credit.com, so that if something like this does hit your credit reports, you’ll know.

There’s another reason to ask them to bill your health insurance right away. If your medical providers fail to bill your health insurance and later it turns out you can’t recover through auto insurance, it may be too late to bill your health insurance.

“If you have health insurance, definitely attempt to use it,” Simeone said. “You can still recover the full amount of your medical damages from the responsible party — they will not benefit (by paying less) because you had health insurance and used it. If the medical office refuses to accept health insurance because your treatment involves an accident or you have a lawyer, you may need to get on the phone with the office manager and explain to them that under your plan, there is no exception for coverage for that situation. Also, explain that you may not even obtain a recovery — there are no guarantees in law, on even the best cases — and if you wait to submit your bills to health insurance, you may not be able to do so years later when you learn you will not receive a recovery.”

What You Should Try to Pay

Of course, even the best health insurance may not cover everything. You probably have co-pays and/or deductibles that you are responsible for paying. If that’s the case, you may be better off paying those amounts yourself in order to prevent bills from being turned over to collections.

If it’s impossible for you to cover those out-of-pocket expenses while you wait for an insurance settlement, another option may be for you or the doctor’s office to ask if the provider will accept “assignment,” meaning that their fees would be paid out of any settlement you receive. The downside of this is if you don’t receive a recovery, you are liable for the bills.

Still another option: Ask your lawyer for a “letter of protection.” That basically assures medical providers that you are attempting to collect a settlement with which you intend to pay your balance and may keep your bills from being sent to collections. “This often is enough to buy you time to make periodic payments or buy time until your case is resolved,” Simeone said. “Creditors will often feel comfortable waiting for repayment if they know we are aware of their debt, that there is a reason it is not paid (i.e., the accident), and that we will attempt to obtain payment.”

If dealing with the medical bills from an auto accident may feel as overwhelming as the accident itself, you may want to talk with a personal injury attorney who should be familiar with the options for helping clients protect their credit. But plan on monitoring your credit regularly and staying involved in the process. That way, you hopefully won’t be dealing with damage to your credit long after your injuries have healed.