A $300,000 debt for life-saving, emergency medical treatment was not a “consumer” debt because it was not “voluntarily” incurred, according to Bankruptcy Judge C. Kathryn Preston of Columbus, Ohio.
A patient presented himself at the emergency room with fever and difficulty breathing. He was diagnosed with severe pneumonia. At first, he refused admission, until he was told he would die within hours.
The patient was in the intensive care unit for six weeks, including two weeks on a ventilator. The patient underwent physical therapy for an additional three months. For his stay in the ICU, the hospital billed about $300,000.
The patient filed a chapter 7 petition, but the U.S. Trustee filed a motion to dismiss under Section 707(b), contending that the debtor’s debts were “primarily consumer debts,” raising a presumption of abuse. The debtor filed a motion for summary judgment to dismiss the U.S. Trustee’s motion.
Focusing on the facts, Judge Preston said that the $300,000 in medical bills represented almost 75% of the debtor’s debts. In his petition, the debtor had characterized his debts as being primarily “medical.”
In her February 12 opinion, Judge Preston concluded that the debts were not “primarily consumer” and granted summary judgment in favor of the debtor.
The case turned on the definition of “consumer debt” in Section 101(8). The section describes “consumer debt” as debt that is “incurred by an individual primarily for a personal, family, or household purpose.”
In two cases, the Sixth Circuit interpreted “consumer debt” to require “volition,” Judge Preston said. Debts not incurred voluntarily, according to the circuit, include tax liens and tort judgments. Unlike consumer debts, which arise from consumption, tax debts result from income, and consumer debts normally arise from extensions of credit, according to the appeals court.
Judge Preston had “no doubt” that “most medical debts are considered consumer debts, as most are incurred voluntarily,” such as routine medical visits and cosmetic surgery. However, she cited federal and state laws that require hospitals to provide emergency treatment regardless of a patient’s ability to pay.
The U.S. Trustee made two arguments. First, according to the government, the debtor incurred the medical bills voluntarily because he consented to treatment. Nonetheless, Judge Preston said that “an act that leads to indebtedness may be undertaken voluntarily but the attendant debt may result involuntarily and is not the type of debt that a debtor would expect to incur in his daily affairs.” [Emphasis added.]
Second, the U.S. Trustee argued that the debt was consumer in nature because it was incurred “for a personal purpose.”
In response, Judge Preston said that almost all debts “have some kind of personal, family, or household purpose, even those incurred with an eye for profit . . . , but this does not make it a ‘consumer debt.’”
Judge Preston concluded that the medical debts were not voluntarily incurred because the debtor “did not intend to have a near death experience” and spend six weeks in the ICU. She said the medical bills were “more akin to judgment from a tort action, in which some sort of accident occurs and the debtor is found liable for the unforeseen damages.”
Observations
Courts are split on whether large medical debts qualify as consumer debts. In an opinion on November 19, Bankruptcy Judge Mary P. Gorman of Springfield, Ill., ruled that $82,000 in medical bills in excess of insurance coverage were consumer debts even though they were involuntary in nature. Zgonina, 19-90467, 2019 BL 445060, 2019 Bankr. Lexis 3571 (Bankr. C.D. Ill. Nov. 19, 2019). For ABI’s report on Zgonina, click here.
This writer submits that focusing on the voluntary nature of debt does not advance the inquiry. Even in the case of an accidental tort, there will be an element of “voluntariness.” For example, an individual causing an auto accident intended to drive the car but did not intend the consequences. How much “voluntariness” is required before a debt is “consumer?” Where should the court draw the line?
Like Judge Preston, who focused on the debtor’s expectations, perhaps courts should employ an objective test, inquiring whether someone would expect to incur a particular type of debt in the normal course of family life. Consumers expect to incur debt for cars or to purchase and outfit homes. But no one expects to incur large medical debt. No one expects to cause an accident. No one expects to incur large tax debts, which also have been held to be non-consumer.
People make mistakes, and bad fortune can befall. That’s human nature. Mistakes and bad fortune can end up saddling an individual with large debts. Should someone be subjected to a five-year chapter 13 plan on account of a mistake or bad fortune?
Bankruptcy law has other means for dealing with circumstances where the debtor is not blameless. For example, an intentional tort can result in nondischargeability, and tax debts can be nondischargeable. Even if an individual has nondischargeable debts, why also deny access to chapter 7?
Perhaps normal expectations should weigh heavily in deciding whether a debt is consumer in nature. People who are subjected to bad fortune should not also be subjected to chapter 13.
A $300,000 debt for life-saving, emergency medical treatment was not a “consumer” debt because it was not “voluntarily” incurred, according to Bankruptcy Judge C. Kathryn Preston of Columbus, Ohio.
A patient presented himself at the emergency room with fever and difficulty breathing. He was diagnosed with severe pneumonia. At first, he refused admission, until he was told he would die within hours.
The patient was in the intensive care unit for six weeks, including two weeks on a ventilator. The patient underwent physical therapy for an additional three months. For his stay in the ICU, the hospital billed about $300,000.
The patient filed a chapter 7 petition, but the U.S. Trustee filed a motion to dismiss under Section 707(b), contending that the debtor’s debts were “primarily consumer debts,” raising a presumption of abuse. The debtor filed a motion for summary judgment to dismiss the U.S. Trustee’s motion.
Focusing on the facts, Judge Preston said that the $300,000 in medical bills represented almost 75% of the debtor’s debts. In his petition, the debtor had characterized his debts as being primarily “medical.”
In her February 12 opinion, Judge Preston concluded that the debts were not “primarily consumer” and granted summary judgment in favor of the debtor.