Are Medical Bills Unsecured Debt?

When you go to the doctor or make a trip to the emergency room, you usually don't hand over the cash for the medical services you receive before being treated. Medical facilities typically bill you and your health insurance carrier for their expenses. This kind of debt is known as unsecured debt, making medical creditors unsecured creditors.

Secured Debts

When most people buy a car, they usually go to a lender, ask for a loan and use the loan funds to make the purchase. The lender, in exchange for giving the borrower the money, acquires a security interest in the car. This security interest, called a lien, allows the lender to take possession of the car if the borrower fails to pay the loan back. This kind of loan is known as a secured loan because the lender acquires a security interest in the debtor's property.

Unsecured Debts

When you use a credit card, you don't have to give the card company a lien on your home or other property. Similarly, when you visit your physician, she doesn't require you to provide a security deposit or sign over the right to take your property in the event you do not pay her bill. When you owe a debt, and the creditor does not have a security interest in your property, this is known as an unsecured debt.

Impact

If you pay your bills on time and never have a problem making payments, there is little difference between a secured and unsecured debt. However, if you default on the debt, a secured lender has the right to take your property to recover the remaining funds at loan. An unsecured creditor does not. For an unsecured creditor to recover on a loan default, the creditor has to sue the lender and win a judgment.

Other Considerations

"Bloomberg Businessweek" reports that medical bills and unpaid medical debts were the cause of 62 percent of all the personal bankruptcies filed in 2007, and 72 present of the filers had medical insurance. The point being, unsecured medical debt can cause serious financial hardships even if you have health insurance, and even if it is unsecured. Just because a debt is unsecured doesn't make it safe to not pay the bills. If you need advice about debt management or assistance, talk to a debt counselor or financial adviser in your area.