New Bill Would Offer Advantages to “Medically Distressed” Debtors

New Bill Would Offer Advantages to “Medically Distressed” Debtors

By:  Michael R. Blaskowsky  – Columbia River Law Group



On June 12, 2014, Sen. Sheldon Whitehouse of Rhode Island introduced Senate Bill 2471, the “Medical Bankruptcy Fairness Act of 2014”.  Following its introduction, it was immediately referred to the Senate Judiciary Committee where it is awaiting a hearing.

Under this Act a debtor filing for bankruptcy would be considered a “medically distressed” debtor if he or she incurred $10,000 in medical debt (or a lesser amount of it exceeds 10% of adjusted gross income) in the three-year period immediately prior to the filing of the bankruptcy petition.  A debtor who can qualify as “medically distressed” can obtain the following advantages in a bankruptcy filing:

•  An increase in the amount allowed to be claimed for the homestead exemption from $22,975 to $250,000;

•  An exemption from “means testing”;

•  An exemption from the pre-filing credit counseling requirement;

•  The ability to discharge student loan debt without the necessity of proving “undue hardship”.

This ability to discharge student loan debt would be the biggest advantage to a “medically distressed” debtor.  A Northeastern University professor has been quoted as estimating that over 171,000 debtors last year would have been able to discharge their student loans under this proposal.

For better or worse, this bill’s chances of becoming law are remote.  In fact, one web site predicts the chances of passage at only 4%.  As with the recent effort to allow bankruptcy judges to rewrite mortgage loans, the student loan industry is expected to lobby Congress extensively to defeat this proposal.

This post is intended to be purely informational in nature, and cannot be considered legal advice.  If you have questions related to bankruptcy, please call our office at (503) 545-1061 (Oregon cases) or (360) 836-4238 (Washington cases) to schedule a free initial consultation.