What counts as a hardship for medical debt?

Medical bills don't always arrive at a convenient moment, if there even is such a thing. These types of expenses tend to show up in the middle of job changes, family challenges or long periods of recovery when money tends to be tightest. And, medical costs tend to be high overall, too, making it even tougher to fit them into the budget. Just a single emergency room visit or specialist appointment can send your finances into a tailspin, even when you have insurance, forcing tough financial choices to be made.

Those types of issues have led more Americans to look for medical debt relief as a way to stay afloat, especially in today's inflationary environment. But when it comes to qualifying for medical debt relief, the provider-based hardship rules can feel opaque, and many people are unsure of what qualifies. Some may think that help is only offered when you're completely unable to pay. Others may assume their income is too high without ever checking to see if they meet the criteria.

If you qualify, though, a hardship designation could be the difference between getting help and months or years of escalating collection efforts. So what actually counts as a hardship when it comes to medical debt? And what other options do you have if you don't qualify? Below, we'll break down the answers to both of these critical questions.

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What counts as a hardship for medical debt?

A financial hardship is generally defined as a major, documented circumstance that prevents you from paying your medical bills in full or on time. While each hospital, medical provider and debt collection agency has its own qualification guidelines, many look for similar factors when offering help with your medical bills. Here are some of the common hardships that could qualify you for reduced payments, payment plans or even partial debt forgiveness:

Loss of income or unemployment

One of the clearest forms of hardship is a sudden drop in income. If you were laid off, had your hours cut or lost contract work, you may qualify for assistance, even if the change in income happened months after you received the medical care. Providers typically ask for documentation, like pay stubs, unemployment benefits letters or termination notices, to verify the hardship, but the threshold for relief is often more flexible than borrowers expect.

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High medical costs relative to income

You don't need to be unemployed to qualify for assistance with your medical debt. If your medical bills represent a significant percentage of your monthly income, you may be considered "medically indigent." Many nonprofit hospitals use sliding-scale charity-care guidelines based on your income level, household size and federal poverty thresholds. For example, some hardship programs reduce or eliminate bills for households earning up to 200% to 400% of the federal poverty level.

A major illness or long-term medical condition

Ongoing health conditions can limit your ability to work or create mounting medical expenses that outpace your income. Chronic illnesses, disabilities or long-term treatments such as chemotherapy can all qualify as hardship triggers. Providers are often more willing to negotiate if your condition directly affects your earning power or creates repeated, unavoidable bills.

Unexpected life events

Hardship isn't always strictly financial. Providers may also consider events such as the death of a family member, divorce, domestic-violence situations or sudden caregiving responsibilities as hardships that qualify for assistance. After all, these types of circumstances can disrupt your finances and reduce your ability to stay current on medical bills, even if your income doesn't immediately change.

High essential expenses

Regular expenses, like rent, utilities, childcare, transportation and even insurance premiums, can absorb a large portion of your income, leaving little room to pay medical bills. If your monthly budget already leaves you with minimal disposable income, you may qualify for a reduced or deferred medical debt payment plan.

What debt relief options should you consider if you qualify for hardship?

If you're already deep in collections or dealing with multiple debts at once, you may need additional support. For example, if your medical bills are past due or already in collections, you may be able to settle the debt for less than you owe. Medical providers are often more flexible than traditional lenders about settling what you owe for less, so taking this approach could result in cutting your debt in half (or saving even more). 

You can take a DIY approach to settling your medical debts, but working with an expert on those negotiations could result in a better outcome. Debt relief companies, in particular, specialize in negotiating with all types of creditors to try and lower the amount you owe, so this can also be a more comprehensive solution if your hardship extends beyond healthcare.

Credit counseling agencies offer a different approach to handling medical debt. With this route, a credit counselor will help you create a debt management plan that fits your overall budget and will work with your creditors to reduce interest rates and consolidate payments into one monthly bill. While it may not reduce your principal balance, this approach can make repayment more manageable and help you avoid defaulting.

The bottom line

A hardship designation for medical debt typically isn't reserved for the most extreme situations that you may assume. Many people qualify without realizing it, whether they're dealing with income loss, chronic illness or major life changes that overwhelm their budget. Whatever route you take, though, you need to be proactive about dealing with your medical debts or it could have a big impact on your financial health, especially over time.