Bankruptcy Law, COVID-19, Medical Debt, student loan debt

Bankruptcy Reform Bill Proposed that will Discharge Student Loans and Medical Debt

The Medical Bankruptcy Fairness Act of 2021 was unveiled by Democratic Senators this week in response to the economic impact of the Covid-19 pandemic. The bill would make substantial reforms to the current bankruptcy code, making it easier for those struggling with student loan debt and medical debt to discharge the same in bankruptcy.

Currently, the bankruptcy code treats student loan debt differently from other types of consumer debt. Borrowers must show they meet the ‘undue hardship’ requirement in order to discharge their student loan debt in bankruptcy.

Furthermore, borrowers must initiate an “adversary proceeding,” which is essentially a lawsuit within the bankruptcy case that is brought against the borrower’s student loan lenders. Evidence must then be presented showing why the borrow meets the standard of undue hardship, while student loan lenders present opposing evidence.

The bankruptcy reform bill would:

  • Create a more accommodating bankruptcy process for Americans forced into bankruptcy because of medical debt, or because they lost their job due to a public health-related shutdown.
  • Waive procedural hurdles like credit counseling, which is currently required for most people going through the bankruptcy process.
  • Increase protections for people’s homes by allowing the retention of at least $250,000 of home equity.
  • Allow student loan borrowers to discharge their student debt in bankruptcy.

Proponents of the bill maintain that these measures are necessary in light of the economic impact the Covid-19 pandemic has had on so many families.

“We need to ease the burden on families dealing with the health and financial fallout from this pandemic.” said Senator Sheldon Whitehouse, one of the lead co-sponsors of the bill. “Our employment-based health insurance system is ill-suited for a pandemic. Many of the millions of Americans who are out of work lost their health insurance along with their income, and they’re at increased risk of racking up huge medical bills if they come down with COVID-19.”

Medical debt has been a leading cause of personal bankruptcy filings in the United States. The number of personal bankruptcies was reduced by half within six years of the passage of the Affordable Care Act. However, millions of Americans have lost their health insurance during the pandemic, and experts say there could be a flood of personal bankruptcies in the coming months and years as medical bills begin to pile up. The pandemic is putting incredible financial strain on Americans who contract the virus and families who lose their jobs as a result of the ongoing health crisis.

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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at   

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