A decision from Illinois highlights two flaws in the U.S. health care system: (1) Even with health insurance, medical bills can force someone into bankruptcy; and (2) if medical bills are “consumer” debts, a debtor will be forced to pay his or her disposable income to creditors for five years under a chapter 13 plan, thus compounding the injury that the patient suffered from being ill in the first place.
The debtor was a single woman saddled with more than $82,000 in medical debt. She had medical insurance, so the bills evidently represented copays, deductibles and uncovered expenses. The expenses were for medically necessary services, not for optional or elective procedures like cosmetic surgery.
In addition to medical debt, the debtor listed some $63,000 in student loans and about $26,000 in other debt in her chapter 7 petition. The debtor claimed she was exempt from the so-called means test because her debts were not “primarily consumer debts” under Section 707(b)(1).
The U.S. Trustee filed a motion to dismiss for abuse under Section 707(b)(1), (2) and (3), contending that the debtor failed the means test because medical bills are consumer debts. If the debtor did not convert the case to chapter 13, the U.S. Trustee wanted the judge to dismiss the petition.
In her November 19 opinion, Bankruptcy Judge Mary P. Gorman of Springfield, Ill., focused on the nature of medical bills, because the debtor agreed that she would be required to comply with the means test if the medical bills were consumer debts.
In Section 101(8), “consumer debt” is defined as “debt incurred by an individual primarily for a personal, family, or household purpose.” Judge Gorman pointed out that “primarily” is not defined in the Bankruptcy Code. Dictionary definitions, she said, suggest that “primarily” means “more than merely half.” Nonetheless, the “majority of courts” take the word to mean more than 50% of scheduled debt, according to Judge Gorman.
The debtor contended that medical debt is not consumer debt because medical expenses are not incurred voluntarily. She pointed to the Sixth Circuit, which has held that tax debt is not a consumer debt because it is not voluntarily incurred, is not for personal or household purposes, and did not result from consumption or an extension of credit. In re Westberry, 215 F.3d 589 (6th Cir. 2000).
Judge Gorman distinguished Westberry because the circuit was holding that the so-called co-debtor stay did not apply since tax debt is not consumer debt.
For Judge Gorman, the involuntary nature of medical debt was not enough to persuade her that the obligations were not consumer debt. She said that medical services provide a “direct traceable benefit to a debtor or the debtor’s dependents, and, accordingly, the resulting debt fits squarely within the definition of consumer debt.”
Judge Gorman distinguished debts resulting from torts because, she said, debts from “negligence are generally not considered consumer debts.” Someone committing a tort, she said, “is not acting with a personal or household purpose in mind.”
Next, Judge Gorman alluded to the Trust in Lending Act and the Fair Debt Collection Practices Act, both of which protect consumers from illegal methods used in collecting medical debts.
Finally, Judge Gorman said that categorizing medical debt as non-consumer debt would have untoward results in other aspects of bankruptcy law. She noted that the co-debtor stay in Section 1301(a) would not apply if medical debt were not a consumer debt, and debtors would not be entitled to confirm a chapter 11 plan with better treatment for medical debt under Section 1322(b)(1) if it were not a consumer debt.
Finality
This month, the Supreme Court heard oral argument in Ritzen Group Inc. v. Jackson Masonry LLC, 18-938 (Sup. Ct.), to give better definition to what is or is not a final, appealable order. The decision by Judge Gorman is a prime example of the lack of clarity when it comes to finality.
Is Judge Gorman’s decision a final, appealable order? If it is not final, and if the debtor elects to challenge the decision on appeal, must she suffer a dismissal of her petition and thus forfeit the protection of the automatic stay?
Or, if she needs the automatic stay, must she confirm a chapter 13 plan and then appeal confirmation of her own plan?
Because a case like this presents such a clear, controlling issue of law foreshadowing the outcome of the entire bankruptcy, one hopes the justices will propound a rule permitting appeal in similar situations without requiring authorization for an interlocutory appeal.
A decision from Illinois highlights two flaws in the U.S. health care system: (1) Even with health insurance, medical bills can force someone into bankruptcy; and (2) if medical bills are “consumer” debts, a debtor will be forced to pay his or her disposable income to creditors for five years under a chapter 13 plan, thus compounding the injury that the patient suffered from being ill in the first place.
The debtor was a single woman saddled with more than $82,000 in medical debt. She had medical insurance, so the bills evidently represented copays, deductibles and uncovered expenses. The expenses were for medically necessary services, not for optional or elective procedures like cosmetic surgery.
In addition to medical debt, the debtor listed some $63,000 in student loans and about $26,000 in other debt in her chapter 7 petition. The debtor claimed she was exempt from the so-called means test because her debts were not “primarily consumer debts” under Section 707(b)(1).
The U.S. Trustee filed a motion to dismiss for abuse under Section 707(b)(1), (2) and (3), contending that the debtor failed the means test because medical bills are consumer debts. If the debtor did not convert the case to chapter 13, the U.S. Trustee wanted the judge to dismiss the petition.
In her November 19 opinion, Bankruptcy Judge Mary P. Gorman of Springfield, Ill., focused on the nature of medical bills, because the debtor agreed that she would be required to comply with the means test if the medical bills were consumer debts.