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 debtor — a "medically distressed debtor" — defined as someone who incurred significant out-of-pocket medical costs, lost income, or missed domestic support payments due to illness or injury in the three years before filing. Qualifying debtors would receive several benefits: a higher home equity exemption (up to $250,000), exemption from the means test that normally limits access to Chapter 7 liquidation bankruptcy, exemption from mandatory pre-filing credit counseling, and an easier path to discharging student loans. The bill would also bar credit reporting agencies from including a medically distressed debtor's bankruptcy on their credit report.
Who benefits
People who filed for bankruptcy primarily due to medical bills, illness-related job loss, or caregiving responsibilities — estimated to be involved in a substantial share of U.S. personal bankruptcies. Families who took on debt caring for ill relatives (parents, grandparents, siblings, children, spouses). Debtors with student loans who also qualify as medically distressed. Homeowners in high-cost states who would benefit from the elevated $250,000 home equity exemption. Bankruptcy attorneys who may see increased filings from newly eligible clients. Indirectly, hospitals and providers who may recover more from patients who can reorganize rather than simply default.
Who is hurt
Creditors — including hospitals, medical providers, credit card companies, and other lenders — who would recover less from medically distressed debtors who gain easier access to discharge. Student loan servicers and the federal government, which backs most student loans, would face increased discharge exposure. Credit reporting agencies and data users (lenders, landlords, employers) who rely on bankruptcy records would receive less complete credit histories. Non-medical creditors of qualifying debtors may be disadvantaged relative to cases where the means test applies. Taxpayers who back federal student loans could bear increased costs from expanded discharge eligibility.
Supporters argue
Supporters argue that medical debt is fundamentally different from consumer debt because it is largely involuntary — no one chooses to get sick — and that the current bankruptcy system fails to distinguish between reckless spending and catastrophic illness. They point to research suggesting medical costs are a contributing factor in a large share of U.S. personal bankruptcies, and that the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act's means test was designed to screen out high-income filers, not people financially devastated by illness. They contend that blocking bankruptcy from appearing on credit reports removes a lasting financial penalty for an event the debtor could not control, helping families rebuild faster.
Opponents argue
Opponents argue that creating a special exemption class based on self-reported medical expenses invites abuse, since the bill's broad definition — covering income loss from public health emergencies and debts incurred for non-dependent relatives — makes the category difficult to verify and easy to manipulate. They contend that exempting medically distressed debtors from the means test and credit reporting undermines the integrity of the bankruptcy system, which relies on uniform rules to maintain creditor confidence and keep credit markets functioning. They further argue that removing bankruptcy from credit reports eliminates information that lenders, landlords, and employers legitimately rely on, potentially raising borrowing costs for all consumers to offset increased uncertainty.