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Congressional Democrats Aim for Real Bankruptcy Reform

Separate Bills Introduced to Make Private Student Loans Dischargeable Again and to Specially Treat “Medical” Bankruptcies

real bankruptcy reform

Getting the Attention the Consumers Deserve

Two separate pieces of legislation are being introduced by Senate Democrats that will, despite long odds of becoming law in a Congress dominated by pervasive and bi-partisan financial industry lobbying, at least help to re-focus attention on the damage done to the U.S. Bankruptcy Code by the BAPCPA bankruptcy “reform” amendment to the Code in 2005 and on the actual circumstance underlying most consumer bankruptcies: our terrible for-profit health-care system.,

The Medical Bankruptcy Fairness Act of 2014

This Medical Bankruptcy Fairness Act of 2014, S. 2471, introduced by Senators Warren and Whitehouse, aims to create a special and more favorably treated “class” of debtor in bankruptcy: the “medical” bankrupt.

Prior to the introduction of this legislation, “medical bankruptcy” was a term one might often see bandied about on the internet but which had no actual substantial meaning. A “medical bankruptcy” was simply—a bankruptcy. Medical debt is always dischargeable in bankruptcy (absent some allegation of fraud based on an allegation that, say, cosmetic surgery that was purely elective was undertaken prior to the filing of a bankruptcy with knowledge of the impending bankruptcy).

S. 2471, recognizing that medical debt is the foremost reason that people file bankruptcy in the United States (as opposed to mythical causes, such as credit card usage or consumer irresponsibility) takes the idea of a “medical bankruptcy” a step further and actually creates such a thing.

What the legislation does is amend the Bankruptcy Code to insert a definition of a “medically distressed debtor,” which defines such a person as someone who:

  • Within the 3 years prior to filing, paid for themselves or a dependent or non-dependent family-member either an amount that is 10% more than their adjusted gross annual income or $10,000 OR
  • Who did not receive $10,000 or more in domestic support obligations that otherwise would have been received because the person obliged to pay themselves met the above-described definition of a medically distressed debtor OR
  • Someone who has lost a job or suffered a reduction in wages due to injury, deformity, disease, or the care of someone suffering such ailments.

A medically distressed debtor in bankruptcy will enjoy the following benefits:

  • Increases the available exemption (protection) for equity in a home and household goods to $250,000.00;
  • Removes the ability of the U.S. Trustee or other parties to object to a Chapter 7 case as filed in “bad faith” based on an income vs. expenses analysis or to object to the confirmation of Chapter 13 plan on the same basis for medically distressed debtors;
  • Removes the useless & nonsensical requirement for pre-filing credit counseling requirement;
  • Most importantly, makes student loans, both private and public, dischargeable. 

The bill is only in committee, with, apparently only a 12% of making it out of committee and only a 3% chance of being enacted—but these odds aren’t helped by a public that remains disengaged from the political process. 

If you like the sound of legislation that will make a truly fresh start for those seeing assistance from the bankruptcy process due to no personal fault of their own, contact your Senator now! 

Private Student Loan Dischargeability

In addition, Senator Tom Harkin is reported to be on the cusp of introducing legislation to make private student loans dischargeable in bankruptcy once again, just as they were before the 2005 BAPCPA Bankruptcy  Code “reform” bill.

Details on this legislation have not been forthcoming as yet, but presumably it would revise the Bankruptcy Code to revise or remove 11 U.S.C. 523(a)(8), the provision added at the behest of financial industry lobbyists by BAPCPA which made private student loans non-dischargeable.

As the student loan indebtedness high-water mark passes $1.1 trillion, the truth of this insidious Bankruptcy Code provision’s impact upon the wider economy is being more and more well-publicized. Entire generations of young adults are unable to find jobs that pay enough to accommodate enormous debt-burdens are unable to buy homes, marry, have children, or do anything that the wider economy depends on—all so Sallie Me and Company in the predatory student loan-lending industry can pay larger dividends to their shareholders.

If Sen. Harkin’s legislation doesn’t bubble to the surface, it is our belief that the issue will arise again as the ill effects of the presence of a new post-graduate serfdom class is something that the macro-economy cannot support. 

However, contact your Senator now  in order to make your voice heard on real bankruptcy reform in the short-term and give this legislation or others like it a chance of success.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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