Senate Bankruptcy Bill Takes Aim At Medical Debt

By Vince Sullivan
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Law360 (February 2, 2021, 6:06 PM EST) -- A group of Democratic senators proposed new legislation Tuesday that would provide relief to individual debtors who file for bankruptcy due to medical costs or who have lost their jobs and health insurance.

The Medical Bankruptcy Fairness Act of 2021 was proposed by Sen. Sheldon Whitehouse, D-R.I., and co-sponsored by Sens. Elizabeth Warren, D-Mass., Sherrod Brown, D-Ohio, Tammy Baldwin, D-Wis., and Richard Blumenthal, D-Conn. It would streamline bankruptcy procedures for individual debtors whose financial troubles were caused by medical debt or public health-related shutdowns.

Specifically, the bill would eliminate a requirement that debtors undergo credit counseling when they file for bankruptcy, which Sen. Whitehouse said makes little sense for people seeking court protection because of unanticipated medical costs that are largely out of their control.

It also would significantly expand the dischargeability of student loan debt, which currently requires a debtor to pass a high bar of hardship to obtain. An increase in the protected amount of home equity to $250,000 for an individual debtor is also included in the proposal.

"We need to ease the burden on families dealing with the health and financial fallout from this pandemic." Whitehouse said in a statement Tuesday. "Our employment-based health insurance system is ill-suited for a pandemic. Many of the millions of Americans who are out of work lost their health insurance along with their income, and they're at increased risk of racking up huge medical bills if they come down with COVID-19."

Whitehouse has proposed similar legislation at least three times, with measures introduced in 2014, 2016 and most recently in July 2020 failing to come to a vote in the Senate. Warren was a co-sponsor of all three of the previous efforts.

"This public health crisis is pushing families to the brink, especially those with hospital bills piling up," Warren said. "Now more than ever, we need to reform our bankruptcy system to help struggling individuals and families regain their financial footing. That's why I'm cosponsoring the Medical Bankruptcy Fairness Act, legislation to give financially-strapped families and individuals facing crushing medical debt a chance to get back on their feet."

The move is the first bankruptcy reform proposal introduced in the 117th Congress, which convened in early January. It comes at a time when President Joseph R. Biden has taken action to reopen enrollment periods for federal health insurance exchanges due to the millions of people who have lost their coverage after losing their jobs during the pandemic. The special enrollment period will run from Feb. 15 until May 15.

With medical debt playing an outsized role in driving personal bankruptcies, Whitehouse said in his statement that a flood of such insolvency filings could be on the horizon, and the bill would help alleviate the strain on the bankruptcy court system as well as the debtors themselves.

--Editing by Emily Kokoll.

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