• 04
  • August
    2010

One of the many reasons people file for bankruptcy is the accumulation of medical debt. When a family member becomes sick we have little choice but to obtain the medical assistance they need, and unfortunately, that needed medical care often comes with a high price tag. With the costs associated with even basic medical care, it is not uncommon for even a short hospital stay to result in thousands of dollars of hospital and doctor's bills.

For those dealing with excessive medical debt, bankruptcy presents one way to deal with the financial burden. Medical debts are unsecured debts, which may be dischargeable in a Chapter 7 bankruptcy filing. In addition, legislation proposed in the U.S. House of Representatives and the U.S. Senate may make it easier for some people to file.

The bill proposed in the House of Representatives was sponsored by Representative Carol Shea-Porter of New Hampshire and is known as the Medical Bankruptcy Fairness Act. Under the bill, people with medical debts would be allowed to exempt as much as $250,000 from the value of their home or burial plot when filing for bankruptcy. This would allow people to file, even if they still have some equity in their home.

Hearings were recently held by the House Judiciary Committee's Commercial and Administrative Law subpanel to collect testimony on the bill. One witness, a U.S. Bankruptcy judge, reiterated the need for a provision to help those suffering from excessive medical debt, but criticized the current bill for doing too little for those that have already exhausted their home equity in attempting to pay their debts.

One critic of the bill cautioned that it may have unintended consequences in that it would allow some debtors, whose debts did not really begin as medical bills, to use the exemption in filing for bankruptcy. The fear is that those that have credit card, or other types of debt, may find a way to use the law to circumvent the existing limitations on filing for bankruptcy.

We will attempt to provide updates on this legislation as it moves through Congress.

Related Resource:

Bankruptcy hearing reveals competing view on medical debt (The Hill)