Further Limits on Debt Collection For Medical Debt in New York

The 2022 State of the State Report by Governor Kathy Hochul promised to serve the people of New York. The report, which includes efforts to protect New York’s consumers and improve the state’s financial health, has been taking shape through new legislation throughout the year. Last week, the state imposed further limitations on the collection of medical debt by way of new legislation.

The newly passed New York State bills S6522A and A7363A add to existing measures enacted over the past two years.

In 2021, the allowable legal rate of interest that could be imputed on a consumer debt and added to a potential judgment against a consumer debtor was reduced from 9% to 2%. Earlier this year the state slashed the time to collect consumer claims, including medical bills, by half from six years to three years. The state also recently imposed new requirements for supporting and additional documentation for creditors filing suit for consumer claims.

As of now, creditors holding judgments obtained for consumer debts are still able to restrain an individual’s bank account, assuming the amount in the account exceeds the exempt amount.

Creditors collecting debt in New York are allowed to restrain monies from a third party to satisfy the judgment entered. This includes judgments that were based on consumer debt. Although this is still allowed, we should expect further legislation in the state to further limit, or disallow, any recovery on consumer debt.

The new New York law signed last week bans wage garnishments on judgments resulting from medical debts and prohibits entering or enforcing liens on homes for medical bills.

“Too many New Yorkers are burdened with debt, including student debt and medical debt. Unable to immediately pay off these debts, they often face abusive and punitive practices that lead to increased and undeserved financial pressure,” said Gov. Hochul, in remarks explaining the rationale for the law.

The law amends the civil practice law and rules to prohibit health care providers from placing home liens on a person’s primary residence or garnishing wages to collect on medical debt.

More specifically, section 5201 of the Civil Practice Law and Rules, which relates to property belonging to the judgment debtor, was amended to include the following:

No property lien shall be entered or enforced against a debtor’s primary residence in an action arising from a medical debt and brought by a hospital licensed under article twenty-eight of the public health law or a health care professional authorized under title eight of the education law

Also, section 5231, which relates to the issuance of an income execution, states that “no amount shall be imposed in judgments arising from a medical debt action brought by a hospital licensed under article twenty-eight of the public health law or a health care professional authorized under title eight of the education law.”

The new law, effective immediately, is designed to protect New Yorkers from financial distress as a result of what some may consider a failing healthcare system will come at a cost. As more and more medical and healthcare providers struggle financially and are forced to close, there will be fewer medical and healthcare services available to the very consumers these laws are designed to protect.

If you have a debt collection matter you need assistance with, contact Frank, Frank, Goldstein, and Nager.