New Jersey’s Medical Debt Relief Act Now Fully in Effect

In July 2024, New Jersey Governor Phil Murphy signed the Louisa Carman Medical Debt Relief Act into law (the Act). The Act protects patients from certain medical debt collection actions and contains several restrictions on medical debt collectors.

Parts 1 and 4 of the Act, as listed below, became effective as of the enactment date of July 22, 2024 (the Enactment Date), while the other parts others recently became effective on the first anniversary of the Enactment Date (July 22, 2025). 

The Act contains the following requirements and restrictions (many of which echo the Section 501(r) debt collection rules governing tax-exempt hospitals):

1. Reporting medical debt. A medical creditor or debt collector cannot report a patient’s medical debt to a consumer reporting agency concerning health care services performed on or after the Enactment Date. The Act also prohibits a consumer reporting agency from making any consumer report containing a patient’s paid medical debt or a medical debt of less than $500 regardless of the date incurred.

• Collection actions. A medical creditor or debt collector cannot engage in any collection actions until 120 days after the first bill for a medical debt was sent and the creditor or debt collector offered the patient debtor a reasonable payment plan. At least 30 days before taking any collection actions, a medical creditor or medical debt collector must provide the patient at least one additional bill and a notice containing:
  • The collection acts that will be initiated to obtain payment
  • A deadline no earlier than 30 days after the date of the notice after which collection actions will be initiated.

Any communication made by a medical creditor or debt collector to a patient debtor when trying to collect the debt shall include a statement, in at least 14-point boldface font, that the medical creditor or debt collector has not reported the debt to a consumer reporting agency and that if the debt, or any part of it, has been reported, the portion reported is void. A medical creditor cannot sell a patient’s debt to another party unless, before the sale, the medical creditor enters into a legally binding agreement with the debt buyer pursuant to which the debt buyer is prohibited from selling the debt, reporting the debt to a consumer reporting agency and from otherwise seeking payment for the health care service.

A medical creditor or debt collector cannot engage in any collection action against a patient who accepts and complies with the terms of a reasonable payment plan, as defined below. Acceptance of a reasonable payment plan does not constitute an admission by the patient that the debt is valid, and a patient who enters into a reasonable payment plan retains any legal defenses that would otherwise be available in a collection action. A “reasonable payment plan” means a structured repayment arrangement that satisfies each of the following elements:

1. Monthly payment amounts shall be set at a level that the patient can reasonably afford or not more than 3% of the patient’s monthly income, if known by the medical creditor or medical debt collector
2. The duration shall allow the patient to repay the debt in full within a reasonable timeframe, which shall include, but not be limited to, a timeframe that is between 6 months and 5 years in length, based on the total amount owed and the patient’s financial capacity
3. The plan shall include provisions for adjusting the payment amounts and duration in response to significant changes in the patient’s financial circumstances
4. The terms of the payment plan shall be clearly documented in a written agreement provided to the patient, including the total amount owed, the monthly payment amount, the payment schedule, and any interest
5. The plan shall provide a grace period of at least 60 days for late payments
6. The plan shall not charge an interest rate on a medical debt of more than 3% per year

• Medical creditor and debt collector. A medical creditor or debt collector shall not:
  • Charge an interest rate on a medical debt of more than 3% per year. The interest rate applicable to any judgment on medical debt shall be calculated pursuant to applicable court rules but cannot exceed 3%
  • Garnish the wages of a patient with an annual income less than 600% of the federal poverty level to collect the medical debt owed

A medical creditor or debt collector that knows an internal review, external review or other appeal of a health insurance decision which provides the basis for a medical debt is pending cannot:

1. Communicate with the patient regarding the unpaid charges for the purpose of seeking to collect the charges
   1. Initiate a lawsuit or arbitration proceeding against the patient relative to unpaid charges

If a medical debt was reported to a consumer reporting agency and the medical creditor or debt collector that reported the information learns of an internal review, external review or other appeal of a health insurance decision, or learns that the medical debt has been paid, the medical creditor or debt collector must instruct the consumer reporting agency to delete the information about the debt. A medical creditor that knows about an internal review, external review or other appeal of a health insurance decision shall not refer, place or send the unpaid charges to a debt collector, including by selling the debt.

• Medical debt reported to consumer reporting agency. Any portion of a medical debt reported to a consumer reporting agency in violation of the Act is void. The Attorney General or its designee may, in addition to assessing civil penalties, after a hearing and upon a finding of a practice in violation of the Act, order that any moneys or property, real or personal, which have been acquired by means of the practices in violation of the Act be restored to any person in interest

The Act necessitates several changes to common medical debt collection practices, so collectors should familiarize themselves with the Act’s requirements in order to ensure compliance with the new collection restrictions.