Mike Hovell is a tax accountant and credit repair specialist. He’s a founding member of Brooklyn Tax and Credit in Brooklyn, New York, where he focuses on business consulting and credit building, taxation, and consumer credit repair. For more information about Mr. Hovell and his company, visit his website at or call him at (347) 560-3218.

I recently caught up with Mr. Hovell to discuss important issues that often come up with my personal injury clients.


Not all personal injury victims have medical insurance coverage. Unpaid hospital bills can impact your credit rating. I asked Mr. Hovell for his insight on how to deal with unpaid hospital bills.

Mr. Hovell states that missed payments can show up on your credit report as soon as 30 days after the payment due date. Some billing companies wait 60 or 90 days before reporting the lateness. After 90 days, the account is considered to be in default.

The best way to deal with a medical item on your credit report depends if the debt was paid back or not. According to Mr. Hovell, the credit agency violates HIPAA by keeping debt on your report after you pay back what was owed or come to an agreement to pay less. Unless the item is challenged on the ground that it constitutes a HIPAA violation, it will continue to appear on your report. In order to invoke the HIPAA challenge, the original creditor, not the collection agency, must be paid.

If you don’t pay off the medical debt, then its removal from your credit report is handled just as any other debt: persistence and patience.


The tax code includes many health related provisions, including itemized medical deductions and pre-tax payment options. With regard to deductions, Mr. Hovell says you must itemize them but the total expense must be greater than 10% of your adjusted gross income (“AGI”). As for medical payments, Mr. Hovell explained that eligible employees may opt-in to health related benefit plans offered by their employer that will enable them to use pre-tax income for medical expenses.

Moreover, you may use regular retirement accounts such as an IRA or 401k to pay medical expenses. Mr. Hovell states that you can take early distributions from retirement accounts without paying a penalty on early withdrawals if you use the money to pay medical expenses that are greater than 10% of your AGI. Regular income taxes will still be paid on any pre-tax amounts withdrawn.


What about debt forgiveness? Mr. Hovell answers that cancelled debt is considered income for tax purposes unless you’re considered insolvent by the IRS. Another exception to income recognition is when paying off the debt is deductible. Cancelled or forgiven medical debt in excess of 10% of AGI does not count as income since paying the debt is deductible as itemized medical expenses.


Mr. Hovell states that the easiest way to ensure an entry is removed from your report is to make a deal with the creditor, such as a “pay for delete.” The most important aspect of the pay for delete method is to get the agreement in writing. An email from the creditor or collector is good enough. He further states that if the creditor does not remove the entry from the credit report, then you can provide the e-mail to the credit agencies.

Remember that there are many credit reporting agencies, the top three being Equifax, Experian, and Transunion. These companies are independent of one another and their reports often contain differing information. When disputing entries make sure you dispute with all three separately.


Is this taxable? Mr. Hovell’s response is that it depends on what the settlement is meant to compensate you for. Punitive damages and compensatory damages for emotional distress (without a physical injury) are fully taxable. On the other hand, compensatory damages for physical injury are tax free.


Can you deduct these? Mr. Hovell thinks that one of the most unfair provisions in the tax code is that some attorney’s fees are not deductible. He explains that this amount may even be subject to taxation twice. Attorney’s fees taken from settlements or awards connected to physical injury, the collection of debts, income producing activities or tax related cases are deductible.

We hope you find this information helpful.