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What is the ‘Medical Bankruptcy Fairness Act of 2021’?

On Behalf of | Feb 24, 2021 | Bankruptcy

Many people in the Houston area suffered major financial setbacks in 2020. For example, they may have been furloughed for a period of time only to come back to work at reduced hours, or they may have lost their jobs altogether. These setbacks may have caused them to be unable to pay their student loans or medical bills, leading them to fall into a financial hole that they simply cannot get out of. Some U.S. Senators recognize this difficulty and have introduced a bill that would make it easier for people to have student loans and medical debt discharged through bankruptcy.

Current law on student loan debt and bankruptcy

Currently, it is notoriously hard to have student loan debt discharged through bankruptcy. To do so, debtors must show that paying their loans back would cause an “undue hardship.” However, what constitutes an “undue hardship” is not defined in statute, leaving bankruptcy judges to employ a variety of tests to decide whether a debtor’s student loan debt should be discharged through bankruptcy. In addition, to discharge student loan debt, currently debtors must go through an additional adversary proceeding, which can be lengthy, invasive and expensive.

The “Medical Bankruptcy Fairness Act of 2021”

The bill, known as the “Medical Bankruptcy Fairness Act of 2021,” would accomplish several goals. First, it would make it easier for people who are dealing with unmanageable medical debt or were laid off due to a public health-related shutdown to file for bankruptcy. Procedural hurdles such as credit counseling will be waived. In addition, debtors will be able to retain at least $250,000 in home equity. It would also allow people to have student loan debt discharged through the bankruptcy process.

Learn more about your rights and options in bankruptcy

In the end, this bill is just that — a bill — and current law on bankruptcy, student loans and medical debt still stands. This post is for educational purposes only and does not contain legal advice. Those who want to learn more about their rights and options in the bankruptcy process are encouraged to explore our firm’s website for further information on this topic.