Kennedy Wants Debtors’ Medical Expenses to Count in Bankruptcy Reform
As the Senate debates a bill (S 420) that would make it "more difficult and costly" for individuals to file for bankruptcy, Sen. Edward Kennedy (D-Mass.) plans today to introduce an amendment to the measure that would "ensur[e] that a debtor's monthly expenses could include an allowance for health insurance," USA Today reports. Critics of the bankruptcy bill -- approved earlier this month by the House -- say that it "could force families in distress to put a higher priority on old credit card bills than on health insurance premiums." The bill, designed to reduce bankruptcy abuse, would force more people to file for Chapter 13 bankruptcy "which requires debtors to repay a portion of their debts over several years," than Chapter 7, "which wipes out most unsecured debts." Eligibility for Chapter 7 would be determined by a means test that takes into account income and IRS expense standards. Critics of the bill are concerned that medical costs would not fall under these standards, as they are not specified as an "automatic allowance" (such as food and housing) under IRS guidelines.
While Sen. Charles Grassley (R-Iowa), a supporter of the measure, has said "the intent of the bill is for 100% of medical costs to be included in a debtor's expenses," consumer advocates are worried that the "vagueness" in the guidelines will lead to insurance premiums and medical costs being excluded from the means test, making it "appear" that debtors possess more discretionary income. Under Chapter 13, "all discretionary income must be used to repay creditors," USA Today reports. Last week, the Senate voted 65-34 against an amendment to the bill that would have allowed people filing for bankruptcy due to high medical bills to have a better chance of erasing their debts in court than those filing for other reasons. Harvard Law Professor Elizabeth Warren said, "If this bill passes, Congress is warning all Americans to stay healthy, because if they get sick, their safety net will be gone." A study last year found that nearly 50% of all bankruptcies are related to medical expenses (Dugas,USA Today, 3/12).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.