Is medical debt the primary cause for most consumer bankruptcy cases, and if so, can the current push for medical bankruptcy reform really reduce the number of consumer bankruptcies? No, say Amy Y. Landry and Robert J. Landry, III, authors of a recently published article addressing this topic, printed in the Spring 2011 issue of the ABI Law Review. Readers of the ABI Health Care Committee e-newsletter will take interest in this article, which provides a reaction to policymakers' current efforts to enact medical bankruptcy reform, and explains why the underlying reasons for doing so are based on a "fallacy of composition."
Pending before Congress are bills that would amend the Bankruptcy Code to provide greater protection to individual debtors whose debt arises primarily from high medical expenses. The reform, if passed into law, would create a new class of individual chapter 7 debtors—known as "medically distressed debtors"—and provide them with specific protections not available to other chapter 7 debtors. The reform is based on a purported connection between high health care costs and a high number of consumer bankruptcy filings.
But as Assistant Professor Landry and Assistant Bankruptcy Administrator Landry assert, the proposed reform is not as fitting as it seems, and could even lead to an abuse of the Bankruptcy Code. By granting greater protections for medically distressed debtors (such as enhanced exemptions and eliminating in part the "presumption of abuse" under the means test), the proposed medical bankruptcy reform "will dilute the fundamental purpose of BAPCPA and means testing requirements—'to ensure that debtors repay creditors the maximum they can afford,'" write the Landrys.
The core problem with medical bankruptcy reform, according to the authors, is that it is based on a "fallacy of composition." The fallacy here, argue the writers, is that "[s]imply because some debtors with medical debt may justifiably be characterized as a medical bankruptcy, it does not mean all debtors with medical debt are medical bankruptcies." Because the policy behind the reform is based on this faulty premise, the authors claim that the proposals are "misguided" and will not help "to mitigate the incidence of consumer filings," the main objective of the reform.
Moreover, note the Landrys, there is disagreement among researchers over "the degree of influence" that medical expenses actually have on bankruptcy filings. According to the article, certain statistics claiming that medical expenses cause more than 50 percent of consumer bankruptcy filings might be slightly "extreme," while other studies likely underrepresent the influence that medical debt has on bankruptcy filings. In addition, "rhetoric" from policymakers that, for instance, health care costs cause one bankruptcy filing every 30 seconds (a false statistic), only serves to convert the political discussion into "bipolar debates." Thus, underneath the noise, according to the authors, the reality is that most debtors with medical debt are simply not "medical bankruptcies."
The Landrys propose that the Bankruptcy Code in its current form, coupled with the newly enacted health care reform, provides adequate relief to debtors with medical debt without the need for medical bankruptcy reform. Debtors that can repay some of their debt should do so, regardless whether the debt is medical or otherwise. If the bankruptcy process is truly inadequate to address cases involving medical debt, argue the writers, then reform should be brought for all debtors, not just medically distressed debtors.
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