The Medical Bankruptcy Fairness Act of 2008

by Kent Anderson, Esq.

February 5, 2008

Legislation, introduced introduced to amend the bankruptcy code in 2008 by Representative Carol Shea-Porter (D-NH), was intended to increase the Federal Homestead Exemption in Bankruptcy to $250,000 for  medically distressed debtors.  The bill also prohibited bankruptcy trustees in such instances from moving to dismiss a case or converting to Chapter 13 based on the substantial abuse provision of 707(b) of Title ll.  A medically distressed debtor is defined as a debtor in bankruptcy who has spent more than 25% of annual income on unreimbursed medical expenses or has lost more than four weeks of work due to the debtor’s or a relative’s illness.

Increasing the homestead exemption would be a boon to people in this situation who have managed to retain significant home equity through a medical crisis.  It will not help those who have resorted to second mortgages and home equity lines of credit, which is probably more typical.  These people can still lose their homes as a result of the illness.

The Bill introduces the useful concept of an economically distressed caregiver, that is, the person whose income and work opportunities are limited because of assistance provided to a sick relative. The term relative was not defined.  In student loan hardship discharge cases, which admittedly have much more draconian provisions than means testing for Chapter 7 eligibility, care provided to anyone for whom there is no legal obligation for an adult child, sibling, niece or nephew, generally doesn’t count.

Legislation protecting distressed debtors is always welcome and protection from ruinous medical expenses is needed as much now and it was in 2008 when this bill was proposed but not enacted into law.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.

Last modified: February 21, 2013