New Law Blocks Medical Debt From Appearing on or Affecting Credit Scores in California
A new law went into effect this year, promising to reshape how medical debt is treated in credit reporting. Medical debt continues to be the leading type of debt contributing to bankruptcy filings in California, and while this law does not offer direct relief to consumers struggling to pay their medical bills, it provides significant protections to keep struggling Californians from being further damaged by the collateral effects medical debt can have on their credit.
Read about how the new law tackles this vital issue below, and contact Rounds & Sutter, LLP, to visit with a dedicated and experienced Ventura bankruptcy lawyer if you are struggling to meet your financial obligations in Oxnard, Camarillo and surrounding communities in Southern California.
What Is SB 1061, and Why Was It Enacted?
California Senate Bill 1061, authored by Sen. Monique Limón and signed by Gov. Gavin Newsom on September 24, 2024, fundamentally changes how medical debt is treated in credit reports and lending decisions. The bill emerged from growing concerns that medical debt unfairly damages credit scores, even when consumers have little control over the timing or amount of medical services rendered. Studies showed billing errors and insurance disputes were frequent, and that medical debt was a poor predictor of loan repayment, while disproportionately affecting lower-income and minority communities.
Key Protections for California Consumers in SB 1061
1. Medical Debt Deleted from Credit Reports
Under SB 1061, consumer credit reporting agencies (Experian, Equifax, TransUnion) and investigative credit agencies are now prohibited from including any medical debt on consumer credit reports. This extends all the way to investigative reports, reinforcing that medical debt is no longer a mark on your credit file.
2. No Negative Impact on Credit Decisions
Lenders, landlords, employers, and insurers are barred from treating medical debt as a negative factor in credit decisions, even if your credit report mistakenly includes it. In other words, credit reports citing your medical debt cannot be used against you.
3. Ban on Furnishing Medical Debt to CRAs
It is now unlawful for any individual or entity, including a healthcare provider, debt collector, or debt buyer, to send medical debt information to credit reporting agencies. If done knowingly, the debt becomes void and unenforceable, offering strong legal protection for consumers.
New Requirements in Contracts and Notices Effective July 1, 2025
For any medical debt incurred on or after July 1, 2025, contracts must include a very specific warning clause notifying that reporting to credit agencies is prohibited and that violating this by furnishing such information renders the debt void and unenforceable. Hospitals, clinics, and other healthcare providers should update their admissions forms, payment plans, and service agreements to include this language or risk losing legal enforceability for that debt.
Enhanced Hospital and Provider Recordkeeping
SB 1061 also imposes new recordkeeping obligations on hospitals. They must maintain detailed databases for five years, including litigation documents, assignment or debt sale contracts, and annual lists of debt collectors or buyers involved in originating or pursuing the debts. Such transparency aims to prevent unfair medical debt practices and ensure accountability.
Broader Impacts on Providers and Creditors
This law leaves stakeholders in a state of adaptation:
- Healthcare providers and debt buyers lose a long-standing tool for debt collection—credit reporting. This is seen as a triumph for consumer advocates, but it raises concerns about how providers will recoup costs.
- Creditors and lenders must adjust to the absence of medical debt data in credit reports, potentially altering risk assessment models.
- The legislation aligns with federal efforts like those by the Consumer Financial Protection Bureau (CFPB) to remove medical debt from credit scoring, and catapults California ahead as one of the earliest states to enforce such protections.
Timeline of SB 1061 Adoption
- February 8, 2024: SB 1061 introduced.
- July 1, 2024: Amended bill passed key legislative committees.
- September 24, 2024: Governor signs SB 1061 into law, designated as Chapter 520.
- January 1, 2025: Law takes effect; medical debt removed from credit reports.
- July 1, 2025: Enhanced contract language requirement becomes enforceable.
What This New Law Means for Ventura County Residents
For individuals and families in Ventura County, SB 1061 brings several practical benefits:
- Improved Creditability: No longer will credit scores be dinged by unexpected hospital or emergency care bills.
- Protection Against Predatory Reporting: Hospitals, collection agencies, and debt buyers cannot legally report medical debt, and attempts to do so render the debt void.
- Fair Credit Use: Lenders must ignore medical debt when assessing credit applications.
- Required Transparency: Contracts entered after mid-2025 must clearly state that medical debt won’t affect credit, empowering consumers in negotiations.
- More Accurate Billing: Hospitals’ stricter recordkeeping standards may reduce issues like billing errors and insurance disputes—common pitfalls in medical debt cases.
Next Steps for California Consumers
To benefit fully under SB 1061:
- Monitor your credit reports. Californians are entitled to one free report annually from each of the three major credit bureaus. Ordering one from a different agency every four months allows you to monitor your credit report year-round at no charge.
- Confirm the discharge of any existing medical debt from your credit report.
- Review any future billing contracts to ensure they contain the required clause after July 1, 2025.
- Consult legal counsel promptly if you find medical debt improperly reported or enforced; SB 1061 empowers you with strong defenses.
Medical Debt Plagues Four in Ten Californians
A recent survey conducted by the California Health Care Foundation reveals that more than one-third of Californians carry medical debt. Among Californians with low income, more than half are saddled with medical debt. Survey respondents expressed concern with the affordability of healthcare and worry over unexpected medical bills, with many reporting they skipped getting medical care due to the cost. The incidence of medical debt was also dramatically higher among Black, Latino, and multiracial groups compared to white survey respondents.
The survey found people dealing with medical debt in various ways, including paying off their bills over time directly to the provider, owing the debt to a lender, bank, or collection agency, owing money to a friend or family member they borrowed from to pay their bills, or simply having past due bills they are unable to pay. However, the most common form of medical debt reported was medical or dental bills that patients charged to their credit cards. Paying off a credit card to pay for medical care might be seen as the only affordable option for many, but it is especially risky considering the high cost of medical care and the high interest rates charged by credit cards. Medical debt and credit card debt are the leading causes of bankruptcy filings, and adding medical debt to a credit card payment quickly becomes unsustainable.
Why SB 1061 Matters
In removing medical debt from credit reports, California acknowledges that medical emergencies are not indicators of credit mismanagement. By eliminating this barrier, SB 1061 helps restore opportunities for homeownership, business loans, employment, and safe rental housing. The targeted protection for lower-income families and ethnic minorities also helps address disparities exacerbated by medical debt.
Contact Rounds & Sutter in Ventura for Bankruptcy and Debt Relief in Southern California
At Rounds & Sutter, we’re dedicated to helping Ventura County residents protect their financial well-being and legal rights. For guidance on credit report issues, disputes with providers, or pulling yourself out of overly burdensome debt, contact us today. We’re here to support you through these changes—and beyond.