HR-9670-119
Referred to the Committee on the Judiciary, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Sponsored by Steve Cohen (D-TN)
What it does
This bill would amend federal bankruptcy law to create a new category of "medically distressed debtor" for people who incurred significant unreimbursed medical debt, lost income due to illness or caregiving, or were affected by a public health emergency. These debtors would get a larger homestead exemption (up to $250,000), be exempt from Chapter 7 means-testing and Chapter 13 disposable-income requirements, skip mandatory credit counseling, be allowed to discharge student loans without meeting the usual "undue hardship" standard, and have their bankruptcy filing excluded from consumer credit reports.
Who benefits
Individuals and families who filed bankruptcy due to large medical bills, job loss from illness, or caregiving responsibilities; their spouses; people with student loan debt tied to medical hardship; consumer bankruptcy attorneys who represent these filers; and credit-invisible protections benefit debtors seeking future credit or employment screening.
Who is hurt
Creditors, hospitals, medical debt collectors, and student loan servicers who would recover less through bankruptcy proceedings or discharge; credit reporting agencies and lenders who rely on complete bankruptcy history to assess risk, potentially extending credit to higher-risk borrowers unknowingly; other unsecured creditors in the same bankruptcy case whose recoveries could shrink due to larger exemptions.
Supporters argue
Supporters argue that medical debt is a leading cause of personal bankruptcy in the United States, often resulting from emergencies beyond a debtor's control, and that current bankruptcy law treats medically bankrupt families the same as those who accumulated debt through discretionary spending. They contend that larger exemptions, relaxed means-testing, and credit report exclusion would let families keep their homes and rebuild credit rather than face years of diminished access to housing, employment, or loans because of an illness-driven bankruptcy.
Opponents argue
Opponents argue that carving out a special debtor category could be exploited, noting the bill even requires a perjury attestation to guard against manipulation, which signals its own vulnerability to gaming. They contend that excluding these bankruptcies from credit reports removes information lenders rely on to price risk accurately, potentially raising costs for other borrowers, and that reduced recoveries for creditors, including hospitals already operating on thin margins, could be passed on to future patients through higher prices.
Constitutional context
Congress has express authority under the Bankruptcy Clause (Art. I, §8, cl. 4) to establish uniform bankruptcy laws, and this bill operates squarely within that enumerated power rather than raising Commerce Clause or takings concerns since it modifies debtor-creditor rights through the ordinary bankruptcy process. No landmark case constrains this type of exemption or eligibility expansion, as Congress has broad latitude to define bankruptcy classifications and relief mechanisms.
Checks and balances
Congress would set the new bankruptcy classifications and exemptions directly in statute, with federal bankruptcy courts responsible for case-by-case application and interpretation, leaving limited discretion to executive agencies.
Historical precedent
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 imposed the means-testing and credit-counseling requirements this bill would waive for medically distressed debtors, making this bill a partial rollback of that earlier reform for a specific population.