New Bill Proposes Discharging Student Loan Debt for “Medically Distressed” Consumers
When an Oak Park consumer files for personal bankruptcy, he or she typically will be able to discharge medical debts. However, as we’ve told you previously, it’s a lot more difficult—although not impossible—to have student loan debts discharged. Yet some lawmakers believe that people with substantial student loan debts who have been working to pay off their medical bills should be able to discharge their student loans more easily.
According to a recent article in the Wall Street Journal, a new bill, the Medical Bankruptcy Fairness Act, “would allow people to get rid of their student loan debt if they have paid more than $10,000 in medical bills during the three years before bankruptcy.” How many consumers are we talking about? Based on research conducted by a law professor, “more than half of the people who’ve filed for bankruptcy in recent years would qualify.”
Senator Sheldon Whitehouse of Rhode Island initially introduced the Act, emphasizing that student loan debts shouldn’t be treated differently from other debts during consumer bankruptcy proceedings. The Senator described the people who would benefit most as “medically distressed debtors.” He explained that, without the Act, it’s almost impossible to get rid of student loan debts through bankruptcy, and even if you’re able to do it, you’re likely to spend thousands of dollars in the process. If the new bill were to pass, consumers wouldn’t have to convince a bankruptcy judge that they’re unable to pay off their student loan debts, which is how the system currently works. Instead, those loans simply would be eligible for discharge under certain conditions.
Legal Scholars and Lawmakers Back the Bill
Daniel Austin, a law professor at Northeastern University, believes the bill could help a lot of Americans. According to Austin, “more than half of the people who file for bankruptcy these days have enough medical debt to qualify for the student loan discharge.” Indeed, the average consumer who files for bankruptcy has spent nearly $9,000 over the course of the past year on medical bills—and that number doesn’t include all three years prior to the bankruptcy filing.
How many of those people also have student loans? Austin indicates that it’s about 30 percent. According to the article, more than 170,000 people or couples who filed for a Chapter 7 or Chapter 13 bankruptcy in 2013 would have been eligible to have their student loans discharged under the proposed bill.
Will the bill pass? Commentators believe it’s unlikely to pass, “thanks to strong opposition from the financial-services industry lobby.” In the past, the lobby helped to defeat a proposal aimed at giving bankruptcy judges more power to modify a homeowner’s mortgage terms. And as of right now, the bill only has two clear supporters: Senator Elizabeth Warren and Senator Richard Durbin of Illinois.
The bill is actually several years old, but Senator Whitehouse’s proposed student loan relief is a new provision within it. Other new provisions include a proposal aimed at helping “medically distressed debtors” to keep their property with a $250,000 homestead exemption.
If you’re thinking about filing for personal bankruptcy, it’s important to speak to an experienced Oak Park bankruptcy attorney. Bankruptcy law can be complicated, but the dedicated attorneys at the Emerson Law Firm assist consumers every day. Contact us to learn more.
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