[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
MEDICAL BANKRUPTCY FAIRNESS ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
ON
H.R. 901
__________
JULY 15, 2010
__________
Serial No. 111-141
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee STEVE KING, Iowa
HENRY C. ``HANK'' JOHNSON, Jr., TRENT FRANKS, Arizona
Georgia LOUIE GOHMERT, Texas
PEDRO PIERLUISI, Puerto Rico JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois TED POE, Texas
JUDY CHU, California JASON CHAFFETZ, Utah
TED DEUTCH, Florida TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DANIEL MAFFEI, New York
JARED POLIS, Colorado
Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------
Subcommittee on Commercial and Administrative Law
STEVE COHEN, Tennessee, Chairman
WILLIAM D. DELAHUNT, Massachusetts TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina JIM JORDAN, Ohio
DANIEL MAFFEI, New York HOWARD COBLE, North Carolina
ZOE LOFGREN, California DARRELL E. ISSA, California
HENRY C. ``HANK'' JOHNSON, Jr., J. RANDY FORBES, Virginia
Georgia STEVE KING, Iowa
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan
JUDY CHU, California
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
----------
JULY 15, 2010
Page
THE BILL
H.R. 901, the ``Medical Bankruptcy Fairness Act''................ 3
OPENING STATEMENTS
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Chairman, Subcommittee on Commercial
and Administrative Law......................................... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and
Administrative Law............................................. 8
The Honorable Daniel Maffei, a Representative in Congress from
the State of New York, and Member, Subcommittee on Commercial
and Administrative Law......................................... 13
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Ranking Member, Subcommittee on
Commercial and Administrative Law.............................. 13
The Honorable William D. Delahunt, a Representative in Congress
from the State of Massachusetts, and Member, Subcommittee on
Commercial and Administrative Law.............................. 15
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Member, Subcommittee on
Commercial and Administrative Law.............................. 15
The Honorable Steve King, a Representative in Congress from the
State of Iowa, and Member, Subcommittee on Commercial and
Administrative Law............................................. 17
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Member, Subcommittee on
Commercial and Administrative Law.............................. 17
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Member, Subcommittee on Commercial
and Administrative Law......................................... 18
The Honorable Robert C. ``Bobby'' Scott, a Representative in
Congress from the State of Virginia, and Member, Subcommittee
on Commercial and Administrative Law........................... 20
The Honorable Judy Chu, a Representative in Congress from the
State of California, and Member Subcommittee on Commercial and
Administrative Law............................................. 22
WITNESSES
The Honorable Cecelia G. Morris, United States Bankruptcy Judge,
Southern District of New York
Oral Testimony................................................. 85
Prepared Statement............................................. 88
Ms. Aparna Mathur, Ph.D., Resident Scholar, American Enterprise
Institute
Oral Testimony................................................. 96
Prepared Statement............................................. 99
Mr. Peter S. Wright, Jr., Director of Clinical Programs, Consumer
and Commercial Law Clinic, Franklin Pierce Law Center
Oral Testimony................................................. 120
Prepared Statement............................................. 122
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan,
Chairman, Committee on the Judiciary, and Member, Subcommittee
on Commercial and Administrative Law........................... 9
Material submitted by the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Chairman,
Subcommittee on Commercial and Administrative Law.............. 25
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Member, Subcommittee on Commercial and Administrative Law.. 83
Material submitted by the Honorable Trent Franks, a
Representative in Congress from the State of Arizona, and
Ranking Member, Subcommittee on Commercial and Administrative
Law............................................................ 142
APPENDIX
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from the Honorable Cecelia G.
Morris, United States Bankruptcy Judge, Southern District of
New York....................................................... 185
Response to Post-Hearing Questions from Aparna Mathur, Ph.D.,
Resident Scholar, American Enterprise Institute................ 189
Response to Post-Hearing Questions from Peter S. Wright, Jr.,
Director of Clinical Programs, Consumer and Commercial Law
Clinic, Franklin Pierce Law Center............................. 191
MEDICAL BANKRUPTCY FAIRNESS ACT
----------
THURSDAY, JULY 15, 2010
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:32 a.m., in
room 2141, Rayburn House Office Building, the Honorable Steve
Cohen (Chairman of the Subcommittee) presiding.
Present: Representatives Cohen, Conyers, Delahunt, Watt,
Maffei, Johnson, Scott, Chu, Franks, Coble, and King.
Staff present: (Majority) James Park, Counsel; Adam
Russell, Professional Staff Member; and Daniel Flores, Minority
Counsel.
Mr. Cohen. This hearing of the Committee on the Judiciary,
Subcommittee on Commercial Administrative Law will now come to
order. Without objection, the Chair will be authorized to call
a recess of the hearing. I will recognize myself for a short
statement.
Today we will revisit the issue of medical debt as a
contributor to bankruptcy. Last year the Subcommittee held a
hearing on this issue focusing on a Harvard study in 2007 on
nationwide filing for bankruptcy. Disturbingly, that study
concluded that 62.1 percent of bankruptcy debtors can trace at
least part of the cause of their bankruptcies to medical debt.
The 2007 data also indicates that there was a 49.6 percent
increase in medical bankruptcies as a proportion of bankruptcy
filings between 2001 and 2007.
Three years ago this Subcommittee held a hearing on a
predecessor Harvard study, which examined the 2001 bankruptcy
filing data inside select judicial districts around the
country. That study concluded that illness or high medical
bills contributed to almost half of all the bankruptcy filings
that were studied.
The study further suggests that medical debt was driving
middle-class families into bankruptcy. Of these classified in
this study as medically bankrupt, more than 60 percent had
attended college, more than 66 percent at one point owned a
home, and 78 percent had health insurance at the time they
became sick or injured.
H.R. 901, the ``Medical Bankruptcy Fairness Act,''
introduced by Representative Carol Shea-Porter of New
Hampshire, represents an important step forward to addressing
this problem of debtors forced into bankruptcy because of
overwhelming health care costs. This legislation would increase
the Federal homestead exemption to $250,000, and if state law
requires that a debtor claim a lower state law homestated
exemption, it allows the debtor to nonetheless choose the
higher Federal homestead exemption.
These measures would allow a debtor who was forced into
bankruptcy because of high medical debt to protect his or her
interest in their home from being transferred into the
bankruptcy estate and sold or liquidated. They would also
provide some peace of mind for medically distressed debtors,
who have enough to worry about without also having to wonder
whether their hard-earned home equity will be lost because of
accident or illness.
H.R. 901 would also exempt medically distressed debtors
from the Chapter 7 means test. Other Subcommittee Members and I
are on record as being critical of the means test and other
provisions of Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, otherwise known as BAPCCA, or something
like that--BAPCPA--BAPCPA.
The unnecessary expense and burden that it places on
debtors should not be placed upon those who seek bankruptcy
relief because of medical costs or loss of income associated
with providing care. In 2005, BAPCPA supporters pointed to a
Department of Justice court record analysis that concluded the
majority of the sample had no medical debt at all; that among
those with medical debt, the average medical debt was under
$5,000 and medical debt comprised only 5.5 percent of the total
unsecured debt of the sample.
A recent Law Review article examined the Department of
Justice analysis and concluded that the protocol used by the
DOJ, which relied solely on documents filed by debtors in
connection with the bankruptcy cases ``produced a skewed
undercount of medical bills and failed to account for
bankruptcy filers with significant medical hardship, who had no
debt on Schedule F that could be identified as medical.''
As the authors of the Law Review article noted, the clock
cannot be turned back to 2005, when the Dow Jones--excuse me--
the Department of Justice analysis enabled lawmakers to vote
with a clear conscience in favor of BAPCPA and against
amendments that Members of Congress proposed to protect people
with medical problems from certain harsher effects of the bill.
H.R. 901 is a critical first step in correcting this
legislative oversight by restoring balance for medically
distressed individuals facing financial ruin. I thank
Representative Shea-Porter for introducing H.R. 901 that brings
together two of the most important issues that this Congress
and America has faced recently, which is our lack of a national
health care policy, which we rectified this past year, an
historic vote taken in by mostly, almost entirely, Democrats,
and the terrible home foreclosure crisis that continues to
ravage and wreck this country and take people into terrible
bankruptcies and debt caused by years and years of neglect
during the previous Administration.
And I thank our witnesses for their participation today.
[The bill, H.R. 901, follows:]
__________
Mr. Cohen. I now recognize my colleague, Mr. Franks, who is
not here, but I would recognize Mr. Coble, if he would like to
take his moment in the limelight in lieu thereof, in place
thereof.
Mr. Coble. Thank you, Mr. Chairman. I am told that the
Ranking Member from Arizona is en route, so I will waive any
opening statement.
Mr. Cohen. Thank you.
We will then put in reserve the opportunity for Mr. Franks,
the distinguished Ranking Member, to make his opening remarks.
I would now like to recognize Mr. Conyers, the most esteemed,
distinguished and erudite Chairman of this Committee, for any
opening remarks he would like to add.
Mr. Conyers. Thank you, Mr. Chairman.
For the benefit of our friends that are here today, that is
a very expansive introduction that I get from him on a regular
basis.
The only thing I wanted to do was to welcome Dr. Mathur
today--she has testified before us--and also to welcome, extend
a welcome, to her parents, who are here as well. We are proud
of your daughter, except in one respect. And that is that she
is still questioning the fact that 60 percent of all
bankruptcies are created by medical indebtedness.
Now, this is not the most complicated issue that has ever
been before the Committee, and the 60 percent figure is
affirmed by all--well, almost everyone except our witness
today, Dr. Mathur herself. And so what we are trying to do is
to persuade her that everybody else isn't wrong.
And I don't think that that would be too hard a subject
with all my distinguished friends, Mr. Chairman. And so I ask
unanimous consent to put my statement into the record.
Mr. Cohen. Without objection, it will be done.
[The prepared statement of Mr. Conyers follows:]
__________
Mr. Cohen. And the Chair of the Subcommittee likewise
recognizes Dr. Mathur and her parents. And even if one person
may be considered wrong, one woman with courage. And there is
something else that follows it up, I think.
Is there anybody else who would like to make an opening
statement or recognize any of the other panelists or their
parents?
Mr. Maffei, you are recognized.
Mr. Maffei. Thank you, Mr. Chairman. I will be very brief.
But I do appreciate the Subcommittee having this hearing.
It is clear that medical bankruptcy is reaching epidemic
proportions. Whatever the percentage is, it continues to be a
huge problem in my district, and the percentage does seem to
continue to rise in this squeeze, where family budgets are
shrinking and yet medical costs continue to skyrocket. It seems
to be affecting more seniors in my district.
The other thing--just a note in my district, we have not
had the kind of home foreclosure crisis in the rest of the
country, mainly because we haven't seen the big bubble, so our
bubble never burst in terms of home foreclosures. So most of
the plurality of the bankruptcies coming that are actually
affecting regular people are because of medical costs. And
often these are people who have insurance.
And so that is the other point I would make is that while
clearly we made a step in the right direction in our health
care actions in this Congress, we are still going to have this
problem into the future.
Whether Ms. Shea-Porter's bill is the answer or something
else, I am not sure. I will proceed to this hearing without
prejudice about that, but clearly something is necessary to
address it.
And it is my feeling, just to conclude, that given that the
overall costs of health care tend to involve five basic chronic
conditions, and not necessarily catastrophic illness, is that
it seems that this is a problem that should have a solution.
But, you know, look, if we pool all of our risk together,
we should be able to find a way to be able to make sure that
families don't go bankrupt in the relatively rare instance
where they have these catastrophic diseases. And yet, of
course, to that family it is huge.
And my last point, you know, given when a family faces very
difficult illness of a loved one, the last thing that we should
do as a society is then put on top of that this incredible
financial burden and the possibility of losing their home and
et cetera.
And so whatever we can do on this, I appreciate the
panelists coming to testify. Thank you very much.
Mr. Cohen. Thank you, Mr. Maffei.
I would now like to recognize the distinguished Ranking
Member of the Subcommittee, the gentleman from Arizona, Mr.
Franks, for his opening statement.
Mr. Franks. Well, thank you, Mr. Chairman. I apologize. I
just got back from votes, but I got there a little late, so
that made me late here. But thank you.
Mr. Chairman, in July 2009 this Subcommittee held a hearing
on whether medical debt was bankrupting Americans. And the
conclusion was that the answer was no. The evidence continues
to support that answer today, and there is thus no need for the
legislation that is the subject of today's hearing. And I am
surprised that the biggest piece of news since our hearing has
not convinced my colleagues on the other side of the aisle of
that conclusion.
The big news was, of course, Obamacare. Obamacare was
pitched to the American people as the magical legislation that
would increase coverage and simultaneously decrease costs. It
was the silver bullet that would somehow protect Americans from
rising medical costs while spending at least a trillion of
those same Americans' dollars.
Of course, the American people didn't believe that sales
pitch, Mr. Chairman. The majority of them today want Congress
to repeal Obamacare. Instead of being a silver bullet, they
believe Obamacare is proving itself to be a lead balloon.
That being said, every one of my colleagues on the other
side of the aisle today voted for Obamacare. Is today's hearing
the other party's admission that Obamacare won't work? Are my
colleagues worried that the millions who will lose their
medical insurance of their choice under Obamacare will be
bankrupted by the effect of that legislation?
Are my colleagues worried that small business owners, who
face higher insurance benefit costs and higher Medicare taxes
under Obamacare, will be forced into bankruptcy because of it?
Or are my colleagues worried that the $569 billion in new
health care taxes, taxes that violate the President's promise
not to raise taxes on the middle class, will threaten
individuals and small business owners with bankruptcy?
Are my colleagues worried that the $311 billion in rising
health care costs under the Obamacare that the Department of
Health and Human Services' own actuaries identified will
bankrupt Americans, who will have to pay for that?
Now, I don't see those issues addressed specifically in
today's bill, and I wonder if one of my colleagues could point
me to where they are addressed. Of course, perhaps they are not
addressed at all, Mr. Chairman, because Obamacare supporters
have steadfastly refused to admit that realities like these
exist.
In a rose-colored world painted by Obamacare's backers,
oppressive medical debts that bankrupted Americans and American
businesses were supposed to become a thing of the past. They
weren't supposed to become permanent features of the landscape
that meant we had to pass medical debt bankruptcy legislation.
Now, Mr. Chairman, let me just close by a couple of
comments. Under this legislation as it is written, if I went
out and ran my credit cards up to $50,000, all I would have to
do to get rid of those would be to go out and run my health
care costs up to $10,000 and then wipe the entire $60,000
clean. And that puts the situation beyond even the ostensible
scope of this legislation.
And I guess I have to suggest in the context, you know, a
little over a week ago, this country had a 1-day deficit--1
day--of $166 billion. Now, that is larger than the entire 2007
deficit. That is the last time Republicans totally controlled
the budget process for the entire year, and yet in 1 day under
the Obama administration, we have raised that more than we did
in an entire year under the last Republican-controlled process.
And, of course, that is $20 billion more than Obamacare was
supposed to save over 10 years. And, of course, I would just
say, and finally, you know, I want so much. I mean, I have had
16 surgeries, and my parents were burdened with incredible
medical challenges when I was a little baby, and I want you to
know that I identify so much with the people that deal with
these kinds of things.
But under this situation in the final analysis, the
socialized approaches and these things that just simply ignore
the laws of mathematics end up hurting more people, and usually
the ones that need it most in the long run. And I am just
suggesting to you that if we don't start recognizing realities
here, we are going to hurt everybody in the country. And the
people at the bottom rung of the economic ladder are going to
be hurt the worst.
And so with that, Mr. Chairman, I just wonder where it will
all end and yield back.
Mr. Cohen. Mr. Johnson, you are----
Mr. Delahunt, do you seek--appreciate your----
Mr. Delahunt. Yes, I would be very brief, Mr. Chairman.
Thank you.
I just want to remind my good friend from Arizona that the
financial collapse that has immersed us into this economic
quagmire occurred in September of 2008. We all remember the
panic, the concern and the uncertainty. It was devastating. It
will take time to emerge.
I believe we are heading in the right direction. There are
some pieces of light that are piercing the darkness. But let us
not forget--and I don't want to make this partisan, but clearly
the Ranking Member refers to Obamacare and people on the other
side of the aisle, and I have got respect for him, and I know
he is very sincere when he expresses his empathy and sympathy
for people who find themselves in this situation.
But I also can't let go without some rejoinder that it was
a Republican administration and a Republican Congress that is
responsible for policies that led us to the disaster that we
saw consume us in September of 2008.
We can talk about the deficit. Every night during special
orders, or every other night, I spoke to that deficit. It is a
Republican deficit. Let us understand that. That is really what
it is. That is what we inherited when President Obama came to
office and a new majority came to both the House and the
Senate.
We landed on a ship of state that could best be described
as the Titanic in economic terms. We managed to steer and
scrape the iceberg. We still have some shoals that have to be
navigated. But where we are today is the result of the Bush-
Cheney administration that received overwhelming support from
Republicans in both the House and the Senate. And with that, I
yield back.
Mr. Cohen. Thank you, sir.
Does anybody else seek recognition?
Mr. Johnson of Georgia?
Mr. Johnson. Thank you, Chairman, for holding this hearing
on the Medical Bankruptcy Fairness Act. And fairness is so
important, as we adjust the scales from my colleagues on the
other side's predisposition to always support the big business
over consumers.
And, you know, I mean, it was my friend on the other side
of the aisle fought with the vengeance of a mother whose child
was under attack like a bear, a mama bear trying to take care
of her cubs, fought so hard to keep the bankruptcy laws as they
are so that people, say, like my friend, my good friend John
McCain, who forgot how many houses that he owned--it was about
seven, I believe--and fought hard to make it legal for him to
be able to select which of those seven houses he is going to
declare as his residence under bankruptcy, should something
happen and he would have to file.
And they can get the mortgage totally reworked on the other
six homes of his choosing. They can--that beach home, the
chalet in Vail, you know, the Florida, Miami, you know, seaside
villa, the Arlington, Virginia, condo, the Ritz-Carlton condo
in D.C., whatever the case--just take one of those and if you
get into trouble, you can turn yourself right-side up in
bankruptcy. You can get your balance reduced to what the home
is worth now, as opposed to what it was when you took out the.
And they fought so hard for that, and they fought hard to
maintain the right of those folks with the six and seven homes
to be able to get their interest rate reduced, should the need
arise. But they fought so hard against just allowing consumers
to be able to--with the only home that they have--to have that
debt restructured.
And so I am not surprised at the righteous indignation that
has been on display today from my friend on the other side of
the aisle and I mean, you know, folks calling BP, apologizing
to BP, and then calling financial regulatory reform an ant, you
know. These things are just--it is part of a clear pattern of
supporting big business over consumers.
And I am glad that we are having this hearing today, Mr.
Chairman, because this gives the Members the opportunity to
explore whether the Medical Bankruptcy Fairness Act is a tool
that should reform the bankruptcy code to respond to the needs
of distressed medical debtors, most of whom are just working
people, just ordinary consumers.
And I applaud the Chairman for exploring the solutions to
the overall problem of rising medical debt. According to the
IXIS project in 2007, the most recent year for which data are
available, an estimated 72 million Americans have medical bill
problems. Many of these Americans made paying off medical bills
a top priority, and therefore struggled to pay for other basic
necessities like food, rent, clothing and the mortgage note.
According to that report, more than 30 million American
adults used about all their savings or borrowed against their
homes in order to pay off medical bills. This, however, did not
stop the bill collector from knocking on their door if they
came up short.
According to a June 2009 American Journal of Medicine
study, 62 percent of all bankruptcies filed in 2007 were linked
to medical expenses. And of those who filed for bankruptcy in
2007, nearly 80 percent had health insurance.
And so that is why I like to refer to the medical care
reform not as Obamacare, as it is derisively referred to by my
colleagues on the other aisle, singing from a script in unison,
not even in harmony, but in unison, and that is why I like to
refer to medical care reform as medical insurance reform. And
they love to protect those insurance companies also.
According to the same study, most medical debtors were
well-educated and middle-class. Due to the recent recession and
record unemployment, more and more Americans cannot afford
health insurance. Last year Families USA released a report that
showed nearly 3 million people under the age of 65 in my home
state of Georgia were uninsured at some point in 2007 or 2008.
This session Congress scored a historic victory in the
century-long battle to reform the Nation's broken health care
system. Passing health care reform will definitely improve the
situation, but a number of the provisions do not kick in until
2014. Thus, medical debt is a problem that must be adequately
addressed.
I hope this hearing will give us all the opportunity to
understand the serious consequences that medical debt has on
our constituents, and I look forward to hearing the witnesses'
views on how Congress can solve this problem.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Mr. Cohen. Thank you, Mr. Johnson. I appreciate your
warming Mr. King up. I imagine Mr. King is ready.
Now on deck, the next batter will be from Iowa, Mr. Steve
King.
Mr. King. Thank you, Mr. Chairman. Appreciate the testimony
of the witnesses, and I regret that I wasn't here to hear it
all, but, of course, it is a matter of record.
And I would like to first just explore something. I am
always interested in foundational things that we do and turn to
Judge Morris, because I know she will know this, as this is a
completely simple softball question. Where does the Federal
Government get the authority to control bankruptcy?
Judge Morris. Constitution.
Mr. King. Thank you. I knew you would know the answer right
away. And so when I look at Article I, Section 8, it says that
the Congress shall have the power to--excuse me.
Oh, excuse me.
Mr. Cohen. Would the clerk make note that Judge Morris
answered the first question correctly? Our second question?
Mr. King. Well, thank you, Mr. Chairman. I have just been
advised that I came in--this is for an opening statement
invitation, rather than questioning the witnesses, so as I
listened to Mr. Johnson, I got the wrong impression. And so
what I will do instead is say that I will be interested in the
testimony of the witnesses here and looking forward to hearing
that and evaluating that testimony. And I would be happy to ask
those questions at the appropriate time. Thank you. And I yield
back.
Mr. Cohen. You are welcome, Mr. King.
Mr. Watt, you are recognized.
Mr. Watt. Mr. Chairman, I was trying to stay out of this
very partisan debate but I was just going to try to give some
content to Mr. Delahunt's statement.
I was feverishly looking through my BlackBerry, because for
months and months and months I kept in my BlackBerry a magic
date back in September of 2008 on which on a Friday afternoon
at 3:30 in the afternoon, 185 members of our Democratic caucus
were on a nationwide conference call about the impending
meltdown that was about to occur in our economy.
And I was trying to recall whether President Obama--he
wasn't President at that time--was on that call. And I recall
that he specifically was not. That call was with Secretary of
the Treasury Paulson in the Bush administration, the chairman
of the Federal Reserve, Chairman Bernanke, and the leadership.
And we were advised that a similar call had taken place earlier
that day with members of the Republican conference to advise
them of the dire straits that our economy we are in.
And as best I recall that--as best I recall that
conversation--and I am trying to be equal about this; this not,
you know, I just want the record to be square about where we
were at that time--it was Secretary Paulson, a member of the
Bush administration, who likened the condition of our country
at that time to what could, according to him, become worse than
the condition that we faced in the Great Depression unless we
took dramatic action to address that.
So my good friend from Arizona needs to understand that all
of these things take place in an historic context, that this
situation in which we find ourselves didn't just all of a
sudden happen one day when President Obama became President of
the United States or didn't happen one day when we passed what
he characterizes as Obamacare. There is historical context to
this economic meltdown.
There is also historical context to the deficit in which we
find ourselves, because I happened to be here and took one of
the very difficult votes in 1993 or 1994 that people attribute
to the Republican majority becoming a reality in 1994, a very
difficult vote for a number of members of our caucus, but a
vote which led to, by the end of the Clinton administration, a
surplus in our Federal budget projected out as far as the human
eye could see.
It took almost that whole 8-year term of the Clinton
administration to get us there. This is a process. I am
confident that we are moving in the right direction, and we
will be a lot closer at the end of the Obama administration,
either 2 years from now or 6 years from now, than we were at
the end of the Bush administration.
But we need to put this in historical context, that the
Clinton administration left the Bush administration with a
serious surplus projected as far as out into the future as we
could and that within 6 months after the Bush administration
started, we were back into a deficit situation.
So we can be partisan about this. I try not to be partisan
about our economy. To be honest with you, you know, our economy
is something that should be above politics. Our national
defense should be above politics or partisanship. So I just
want to set the record straight that there are some historical
facts that exist here in which we are operating.
And with that, Mr. Chairman, I yield back.
Mr. Coble. Mr. Chairman?
Mr. Cohen. Do I hear a voice from North Carolina? Another
voice from North Carolina?
Mr. Coble. A brief voice.
Mr. Cohen. Mr. Coble, you are recognized, and you are
respected and appreciated.
Mr. Coble. Thank you, sir. I am going to insert my oars
into these partisan waters.
There is nothing wrong with being partisan, by the way. But
I think during the time that Mr. Watt referred to during the
Clinton administration, the surplus, I believe a good part of
that time there was a Republican majority, at least in the
House. So I think we need to have some credit for that as well.
Mr. Watt. If the gentleman will yield, I am happy to give
whoever voted for the turnaround the credit that they deserve.
My recollection there was not a--there were maybe two or three
people who on your side who voted for it, but I think the
turnaround occurred in a Democratic majority House----
Mr. Coble. Well, this is my time.
Mr. Watt [continuing]. Not a Republican majority.
Mr. Coble. Mr. Franks asked for this. Let me yield to the
gentleman from Arizona for the remainder of my 5 minutes.
Mr. Franks. Well, I thank the gentleman. And I don't want
to carry this much further, but there is no question that the
past Administration has responsibility in these challenges. I
was one of the members of my own party that did vote against
some of the so-called solutions to those problems.
But let me just say to you whatever the Bush administration
did in terms of debt, the Obama administration has surpassed
them profoundly. This Administration has done for spending what
Stonehenge did for rocks. And let me suggest to you that when I
mentioned that 160 billion--$166 billion of spending deficit in
1 day was higher than the last totally controlled--Republican-
controlled deficit for 1 year, that is a matter of fact.
But in any case we just have to realize that sometimes we
got to get back to 101 economics and realize that no matter how
much money we have in our pockets, if there is nothing being
produced in this country in terms of goods and services, it
won't work. And everything I see coming out of this Democrat
majority has put a burden on the jobs market and has weighed
down the economy in ways that I will suggest to you that the
future will manifest in fairly dramatic terms. It already has
done that.
And I guess I would have to go ahead and take one last
thought here, Mr. Chairman. My friend says that we shouldn't
politicize the defense of this country. I couldn't agree with
him more. And yet the last two defense authorization bills
passed by this Congress has had major social engineering forced
on the backs of our soldiers by this majority. So I just would
suggest that that is something that probably he probably should
have left off.
And with that, I will yield back.
Mr. Conyers. Could the gentleman yield?
Mr. Franks. I would be glad to yield to the gentleman.
Mr. Conyers. I just wondered what were those social
engineering projects that were forced upon the----
Mr. Franks. Well, this is the hate crimes legislation, the
Don't Ask, Don't Tell. That should be legislation that should
be voted separately, not when we are trying to fund the people
out there pouring their blood out on some battlefield for all
of us.
Mr. Watt. Gentleman yield?
Mr. Coble. Well, it is my time. I will yield very briefly,
Mel, but I think the Chairman wants to get on with the witness,
but I will yield.
Mr. Watt. Well, we didn't----
Mr. Cohen. No, I think we are all enjoying this.
Mr. Watt. We are just trying to finish it on a very
positive note, my friend from North Carolina. And just to let
him know that people who don't ask and don't tell of all
persuasions shed their blood, too. So, you know, that is not
social engineering. That is personal characteristics of people,
and all of them are Americans just like we are.
Mr. Franks. Mr. Chairman, could I move that we just put the
witnesses' statement in the record and continue this debate up
here? That might be a quick--okay. I see that we got the
Chairman here. I think we got a consensus here at last.
Mr. Coble. Let me reclaim and yield back.
Mr. Cohen. Mr. Coble, normally you are much more temperate,
but look what you have got us into.
Mr. Coble. Hold me harmless for that, Mr. Chairman.
Mr. Cohen. You are. You have got many credits.
Mr. Scott of Virginia?
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, I am a Member of the Budget Committee, and
when I hear the other side talking about fiscal responsibility,
I would first like to point out that there was--everybody knows
we have a big deficit, and there was a suggestion in the Senate
that we have a budget commission to make the tough choices that
nobody likes to make when you are dealing with the budget. If
you got a deficit, you have to raise taxes or cut spending, and
nobody wants to do that.
And we had a suggestion to have a budget commission to make
the tough choices. It is a bipartisan idea in the Senate. When
the President endorsed it, it came out to vote and was defeated
in the Senate, because at least seven Republicans, co-sponsors
of the bill, voted no. So this, you know, that is how serious
this debate is.
Now, the fact of the matter is we have a big budget
deficit, but we would like to be precise as to what the
criticism is. The criticism is that the policies we have now
were instituted during the Bush administration. We have a
deficit because of Republican policies, and Democrats now in
control haven't cleaned it up fast enough. Okay.
We haven't cleaned it up fast enough, because we made a
deliberate choice that we would deal with jobs first. We didn't
want to increase taxes or cut spending in the middle of the
worst recession since the Great Depression. So we will take the
criticism. We haven't cleaned up the mess as quickly as we
should have, because we had another mess that we were dealing
with.
Now, the gentleman from North Carolina, Mr. Watt, talked
about the 1993 vote where we turned around and went on a course
of fiscal responsibility that included PAYGO, and we fixed the
budget. We went on a trajectory that got us to the point where
in 2001 we had a surplus, a projected surplus sufficient to pay
off the national debt held by the public by 2008. If we hadn't
messed up, we would have paid off the debt held by the public.
And to show you what was going on, Chairman Greenspan in
answering questions had to answer questions like what will
happen when we pay off the national debt? What will happen to
interest rates? What is going to happen to the bond market when
we pay off the national debt after the first tax cut? That was
the last time you heard anybody talking about paying off the
national debt.
Now, the gentleman from Arizona says--or somebody over
there said, ``But wait. We were in control after 1995 of the
Congress, so we deserve some credit.'' Now, that is a bold
statement when you look at the facts.
In 1995 when they came in, they passed a budget. It had
reckless fiscal policies in it, and President Clinton promptly
vetoed it and would not sign the bill. He let the government
get shut down rather than sign those irresponsible budgets. And
as a result of his vetoes and enough Democrats left over to
sustain the vetoes, we went on course to be paying off the
national debt. We would have finished paying off the national
debt by 2008.
For someone to take credit for being there when they tried
to dismantle the policies that were in effect and institute
policies that would take us in the direction, and they want
some credit, that is a bold idea. And do you want to know what
would have happened if President Clinton had signed it? We
found out in 2001. President Bush signed it, and we promptly
went right into the ditch with the worst fiscal policy, the
worst stock market, the worst job performance since the Great
Depression, for 8 consecutive years.
Now, we are going to fix the problem. In 1993 when the
bills passed, we passed that great budget without a single
Republican vote in the House, not a single Republican vote in
the Senate. And as a matter of fact, when Marjorie Margolies-
Mezvinsky cast the 218th vote to pass the bill, the Republicans
started chanting, ``Bye-bye, Marjorie,'' and they used that
vote to defeat her in an upcoming election.
We are going to fix the job situation. We are going in the
right direction. We haven't gotten where we need to be, but we
are going in the right direction. We passed the jobs bill
without a single Republican vote in the House or the Senate.
And then we are going to attack the deficit, and we don't
expect any support from the Republicans. We are going to just
go and fix it over their objections. But to be lectured by
somebody about fiscal responsibility with that history is a bit
much for somebody on the Budget Committee to take.
Now, one of the things that we passed--again, without any
Republican votes--was medical health care reform. And talking
about medical bankruptcies because of health care reform when
it is fully implemented, there will be caps on how much money
the insurance companies can make you pay out of pocket. And so
when you reach the cap, all the rest is on the insurance
companies. And this will significantly reduce the need for
bankruptcy because of health care expenses.
The gentleman from Georgia talked about people going
bankrupt with medical expenses. Most of them have insurance.
There are the co-pays and deductibles that killed them. And so
with the limit on out-of-pocket expenses and no caps on
insurance companies having a cap on how much they are going to
spend a year or how much they are going to spend on a lifetime,
people will be able to have their health care needs addressed
without having to resort to bankruptcy. It will take a couple
of years to fully implement it, but that is what we did--again,
without a single Republican vote on final passage of that bill.
Thank you, Mr. Chairman. We just thought we would get all
the facts on the table so that we can talk about fiscal
responsibility and health care.
Mr. Cohen. Ms. Chu?
Ms. Chu. Mr. Chair, I would like to yield my time to the
distinguished Chair of our entire Judiciary Committee, Mr.
Conyers.
Mr. Conyers. Thank you very much.
I want to hear the witnesses, believe it or not. But this
is a pretty interesting conversation going on, you have to
admit, because there is really wonderful recall on the part of
Bobby Scott and Mel Watt about the history of how we got to
where we are.
But Trent Franks happens to be a friend of mine. The fact
that we have differences in some approaches doesn't bother me a
bit. But for a person who has had so many surgeries in his own
personal life, it is difficult for me to understand why he
would resist health care reform with such fervor.
Those surgeries were probably pretty expensive, and we have
50 million people in America that don't have a dime's worth of
insurance right now. And for him to say and to talk in a
derogatory manner about health care reform being Obamacare--I
never mind him using that phrase, because it is to Obama's
credit that he got this bill through.
It took a year-and-a-half to finally get through a very
modest set of measures that brought health care to 31 million
people that weren't qualified. It ended pre-existing conditions
as an excuse to kick people off of insurance. And so, as modest
as it was, he called it socialized approaches. That is a veiled
way of saying it is socialized medicine.
Mr. Franks. Correct.
Mr. Conyers. And the whole idea strikes me as inappropriate
for someone who, not by choice, was required to go through so
much medical attention himself. It really leaves us something
to talk about, and I would be pleased to yield to the
gentleman, if he would like me to.
Mr. Franks. Well, Mr. Chairman, I will be really brief,
because I appreciate your intent and your heart, and I know
that our disagreement here is based not on any sort of
humanitarian foundation, but on a genuine conviction that the
strategies to pursue the desired end are different.
I truly believe--and I really didn't mean to get
personalized in this situation--that if I had been born under a
socialized medicine era, that I simply would not have gotten
the level of care that I got, because if there is anything that
one might say--I mean, history has borne out. I think Bastiat
said it best. He said, ``Government is that great fiction
through which everyone endeavors to live at the expense of
everyone else.''
And in the final analysis, over time nothing has dragged
more people--poor people--out of poverty, nothing has given
more children born with deformities like myself or others,
nothing has done more for those who needed it--needed help--
more effectively over a sustained period of time than free
people pursuing their dreams, whether it is as a doctor or
whatever it might be, so they are able to provide these kinds
of services in the most effective, efficient manner.
And somehow we just think that it all appears magically by
simply saying, ``Well, the government will pay for it.'' We
don't realize that when the government gets in the middle of
all this, it actually retards the situation, actually hurts the
situation.
If I had been born in the Soviet Union--it wasn't that
people aren't smart over there. It is that their system's no
damn good. And unfortunately, if I had been born there, I
wouldn't be able to speak here at this Committee. And so I
first of all thank God for the chance to do that, but I will
say to you that I am convinced with all of my heart that my
motivation here for free enterprise is so people like me can be
born and have the kind of care that they need, and I don't
think socialized medicine will deliver. It never has.
Mr. Conyers. Well, thank you very much for that statement,
because I know it is heartfelt. Trent, in the Soviet Union they
have a communist system of government, not a socialist system
of government. They are two quite different things.
Mr. Franks. [Off mike.]
Mr. Conyers. Of course, there is a difference. And you
still persist in describing the health care reform bill that
was passed by a majority of the House and the Senate as a
socialist system. What is socialized medicine about allowing
more people on Medicaid by raising the ceiling eligibility?
What is socialist about that?
Mr. Franks. [Off mike.]
Mr. Conyers. Of course, I do.
Mr. Franks. Mr. Chairman, the difference in--you know, I
guess socialism is sort of socialism on a retail basis, and
communism is socialism on wholesale basis. But the reality is
that when you put government in control, where government is in
control of the mechanisms for delivery, you inevitably create a
socialist environment. And it just doesn't work.
I mean, it is true that free enterprise is sometimes the
unequal distribution of wealth. That is true. But socialism is
always the equal distribution, ultimately, of poverty. It
always ends in that direction. And I don't think we realize
that unless the system incents productivity, in the final
analysis there is nothing there for anyone.
And it is hard to express it in terms that sound, you know,
humanitarian, but that is what I want to do. I think, for
instance, I think all of us have a right to run for office
here. But not all of us have a right to call on the government
to make sure that we win. All of us have a right to have access
to our courts, but not all of us have a right to say to the
government, ``You must make sure that I win my case.''
Equal opportunity and equal outcomes are different. And I
just think that if there is anything that has taught us it is,
I mean, the highway of history is littered with the wreckage of
socialism. And I don't know why we have to continue to learn
this lesson. And yes, I do think Obamacare moves us
precipitously and dramatically in that direction.
And so with that, I don't want to--you know, I state all of
this respectfully to the Chairman and yield back.
Mr. Conyers. Of course, Trent. Thank you very much.
Well, perhaps you may be right. Let me ask you. Who runs
Social Security in this country? Who runs Social Security in
this country?
Mr. Franks. Mr. Chairman, I think you make a good example.
I think if we had a long time ago created a system where it
said to people, ``You must put a certain amount of your money
into the mechanism of your choice,'' and we require that as a
referee, we could have done that. But instead, government took
it over, and now it is going to hell in a hand basket. So you
make my point for me.
Mr. Conyers. I see. Okay. Let me ask you this. Who runs
Medicare in this country?
Mr. Franks. Well, I just would repeat my last statement.
Mr. Conyers. All right. Then finally, Mr. Chairman, my
friend Trent said that the majority of people in this country
do not like the health care reform bill that was passed. And I
am passing over to you a article--I think this is from the New
York Times.
Mr. Franks. Where is this from?
Mr. Conyers. Associated Press--in which it says, ``Support
for health care bill hits new high. More now support plan than
oppose it.'' And I would pass it to my dear friend for his
scrutiny and further discussion on it at another time.
Mr. Franks. Well, Mr. Chairman, I would just leave you with
this. Not that the poll should be our deciding conclusion here,
but the ones I have seen show in excess of 50 percent of the
American people want to fully repeal the plan. So, and----
Mr. Conyers. Do you have any citation for that, sir?
Mr. Franks. Could we try to find that for you?
Mr. Conyers. I would like you to.
Mr. Franks. I will try to do that. I think I saw it just
recently.
Mr. Conyers. All right. Thank you.
Mr. Franks. Thank you.
Mr. Conyers. And I want to thank the Chairman for his
indulgence.
Mr. Cohen. I want to thank everybody for their input. It
has been quite enlightening. I am a little confused, though,
because Mr. Franks, who I respect, and I suspect knows a lot
about socialism and communism, said communism is wholesale and
socialism is retail. And my mother always told me to buy
wholesale. So, you know, but I am confused.
And I would like to conclude this, if I could. It is my
prerogative as Chairman to quote the former speechwriter of
President George Bush, David Frum, who said on his Web site
that the Republican Party's decision to uniformly oppose health
care reform backfired. ``We went for all the marbles. We ended
with none. It was the Republican Party that made the big
mistake,'' he argued, ``by losing its grand bet that uniform
opposition to Obamacare could prevent the measure from becoming
law.''
He said it is hard to exaggerate the magnitude of the
disaster. He wrote while Republicans may win a short-term
benefit, add more seats in Congress in November, he argued,
``they will get little compensation for the enactment of a
liberal--little compensation for the enactment of a liberal
policy objective that could last generations and will be
difficult, if not impossible, to repeal.''
So we will see if Mr. Frum is correct.
With that said, I would like to ask unanimous consent to
include in the record an article in the Yale Journal of Health
Policy Law and Ethics titled ``Managing Medical Bills on the
Brink of Bankruptcy.'' Without objection, it will be done.
[The information referred to follows:]
__________
Mr. Cohen. Now, thanking everyone for their statements,
without objection other Member statements will be put in the
opening record--placed in the record.
[The prepared statement of Mr. Johnson follows:]
__________
Mr. Cohen. I am now pleased to introduce the witnesses and
hear their testimony.
First, thank you for all participating in today's hearing.
Without objection, your written statements will be placed into
the record, and we would ask you to limit your oral remarks to
5 minutes. We have a lighting system. Green means you have
started and you have got 5 or less minutes to go. Yellow means
you are in your last minute, and red means you should have
finished.
After each witness has presented his or her testimony,
Subcommittee Members will be permitted to ask you questions
with the same 5-minute limitation.
Our first witness is the Honorable Cecelia G. Morris. Judge
Morris was appointed United States bankruptcy judge for the
Southern District of New York and took the bench on July 1 of
2000. Prior to appointment to the bench, Judge Morris served as
assistant district attorney in the Child Support Recovery Unit
of the District Attorney's Office of the Spalding Judicial
District headquartered in Griffin, Georgia.
Judge Morris also worked in private practice and served as
clerk of the court for the United States Bankruptcy Court for
the Southern District of New York from 1988 to 2000, the first
bankruptcy court to implement electronic filing of original
documents to the court via the Internet.
She is a frequent writer and lecturer on issues related to
bankruptcy, published articles on mediation, consumer credit
counseling requirement in bankruptcy, and cross border
insolvency cases under Chapter 15. She has roots in Texas and
Georgia and though she claims now to be a northerner, she is a
southerner at heart.
Thank you, Judge Morris. Will you begin your testimony?
TESTIMONY OF THE HONORABLE CECELIA G. MORRIS, UNITED STATES
BANKRUPTCY JUDGE, SOUTHERN DISTRICT OF NEW YORK
Judge Morris. Thank you, Chairman Cohen and Ranking Member
Franks and other distinguished Members of the Subcommittee.
Good morning. Thank you for inviting me to testify concerning
H.R. 901. I testify today at your invitation. I do not
represent any group or organization. The thoughts expressed are
mine.
As someone with over 25 years experience in the bankruptcy
field and as the former clerk of court for the Southern
District of New York and, as has been noted from my accent, the
Middle District of Georgia, and now for the past 10 years as a
judge in a busy, mostly consumer division of one of the largest
consumer courts and commercial courts in the world, the
Southern District of New York, I come before you.
You have many sources, including quotes from my written
materials about the statistics concerning medical debts and
bankruptcy. And I agree that this has been a very interesting
discussion, and I have been so pleased to be an eavesdropper on
the discussion that you have had amongst yourselves.
I would like to share with you a courtroom observation. Day
before yesterday--Tuesday--is my regular hearing day. This is
often the first time I see the debtors. They are in court with
their attorney, or they come alone. They are in attendance for
confirmation of chapter 13 plans, to defend motions to dismiss
or motions to lift the automatic stay, and that, of course, is
usually so that a foreclosure can proceed.
Many matters are before me on Tuesdays, and because that
day has many different types of issues, I begin to know the
debtors and their stories. This Tuesday was typical. Tuesdays
are long, hard days made harder by the emotional moments
revealed during proffers by the lawyers and testimony of the
debtors. And this Tuesday was no exception.
A gentleman came to a counsel table with his lawyer. The
debtor was vaguely familiar. The lawyer, who often appears in
my court, is experienced and one of the best in representing
consumer debtors, immediately informed me, as she should, that
the debtor was a repeat filer. He had been before me
previously, and he was unable to make his Chapter 13 plan
payment and to physically attend the first meeting of
creditors.
The lawyer knows that while I am a supporter and believe in
the bankruptcy system and feel that we--and as Congressman
Franks, Ranking Member Franks has suggested--that as citizens
of this country we are really blessed with many things, and one
of the things that we are blessed with is a debt forgiveness
statute.
I lose patience with those, though, who take advantage of
our system and do not work with their attorneys and the
trustees and the court. So you can imagine how quickly I
regained my patience when the lawyer quietly told me that the
debtor had now progressed to stage IV cancer. A once robust
man, now a shadow of himself, he had been unable to fulfill the
requirements of his previous bankruptcy filing.
The lawyer was unaware of the client's battle with cancer.
She had prepared his petition. Remember, this is a good lawyer.
She had looked at his financial information. She had gone over
these bills. Significant medical debt was not apparent in
reviewing this information. It was characterized as other debt.
Under H.R. 901 debtors like this gentleman will be able to
pass the means test, an important step.
Additionally, under the current bankruptcy code, lenders
can be compelled to--can't--excuse me--can't be compelled to
agree to loan modifications on the first mortgage for a primary
residence. At least in the Southern District of New York,
debtors suffering from chronic medical problems, such as this
debtor, or caregivers have an opportunity to negotiate to keep
their homes.
Using the Civil Justice Reform Act of 1990, the bankruptcy
judges of the Southern District of New York adopted a loss
mitigation program aimed at bringing debtors and secured
creditors together.
The Southern District of New York's loss mitigation program
opens communication in two significant ways. First, it requires
the lender to disclose direct contact information for a person
with full authority to make a decision on a re-mod--re-fi. And
second, it provides the lender with protection from the
violation of the automatic stay allowing them to speak directly
with the debtor.
Who knows what awaits this debtor in my court with stage IV
cancer magically? We do know that he needs to stay within the
protection of the bankruptcy law, and he needs to have an
ability to speak with an accountable human being from the
secured lender to make sure he and his family are not disrupted
from their home during a time when he needs to be concentrating
his energies on healing. I thank you.
[The prepared statement of Judge Morris follows:]
Prepared Statement of the Honorable Cecelia G. Morris
__________
Mr. Cohen. Thank you, Judge Morris. I do wonder, and I am
not supposed to ask you questions now, when you said somebody
was a good lawyer as suggesting that there were something else
other than? So anyway, thank you for your testimony.
And our next witness is Dr.----
Judge Morris. That is another day.
Mr. Cohen [continuing]. Aparna Mathur--Mathur?
Ms. Mathur. Mathur.
Mr. Cohen. Mathur.
Dr. Mathur is an economist who writes about taxes and
wages. She has been a consultant to the World Bank and has
taught economics at the University of Maryland. Her work ranges
from research on carbon taxes and the impact of state health
insurance mandates on small firms to labor market outcomes. Her
research on corporate taxation includes the widely discussed,
co-authored 2006 ``Taxes and Wages'' paper, which explored the
link between corporate taxes and manufacturing wages.
She is fortunate to have the parents she has, and genetics
proves that intelligence and attractiveness can be passed from
one generation to the next.
Dr. Mathur, you are recognized.
TESTIMONY OF APARNA MATHUR, Ph.D., RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Ms. Mathur. Chairman Cohen, Mr. Conyers, Ranking Member
Franks and distinguished Members, thank you for inviting me to
testify here--I am happy to be back--and especially for
recognizing my parents. I am sure they are thrilled.
I am going to talk about the Medical Bankruptcy Fairness
Act, I am sorry to say that I will not be--you now have two
people in this room who do not accept the hypothesis that 60
percent of the filings are due to medical reasons.
The Medical Bankruptcy Fairness Act is intended to
institute amendments to the bankruptcy code of 2005 to make the
bankruptcy process easier for medical debtors. I am sure all of
us would agree that a person who is undergoing a medical crisis
needs help more than someone who recklessly spends money on the
credit cards.
We all have friends and family who are struggling with
illness and death and yet have to deal with hospital and
medical bills. However, I would like to caution the Committee
about the act, which may be an example of good intentions that
could go bad.
My testimony will show how the act could harm exactly the
people, the debtors, that you are trying to help. The Medical
Bankruptcy Fairness Act focuses on medical debtors, and as is
clear to me, the urgency to tackle the issue of medical
bankruptcies is being largely justified on the basis of the
Himmelstein studies claiming that more than 60 percent of court
filings are caused by medical debt.
These statistics are simply not borne out by household
surveys carried out by institutions like the Federal Reserve as
well as other datasets widely used by academics.
While bankruptcy filings have increased by 25 percent since
the start of this decade, medical debts--or even if you think
that medical debts are all part of credit card debts--have not
changed significantly as a share of total debt over this
period, as per the Federal Reserve data.
To put things in perspective, in 2007 only 2.4 percent of
families reported any medical debt. In fact, the large
economics literature using standard estimation techniques to
study the link between medical debt and bankruptcies has found
little in back, if any, of medical debts on bankruptcy filings.
That seems obvious to me that medical debts could not be a
significant factor in rising consumer bankruptcies.
The reason the Himmelstein studies find such a significant
impact is because of methodological problems, which I deal with
in my longer written testimony.
To take a simple example, it seems to me that the
Himmelstein studies by including in medical bankruptcies anyone
who missed 2 weeks of work due to illness or anyone reporting
any medical problem at all are overstating the problem. We have
all experienced illness and taken sick days off from work,
sometimes for a week or more, and yet the bankruptcy filing
rate for the Nation as a whole is less than 1 percent. So just
the fact that in their sample people also reported these
problems cannot be taken to imply that these problems caused
the bankruptcy.
The point I am making is that if we are misdiagnosing the
problem, if we are saying that medical debts are the largest
single factor responsible for bankruptcies, when in fact
something like involuntary unemployment is, then the solutions
we come up with will be equally mis-targeted. We cannot afford
to make those mistakes today and divert scarce resources when
people need help urgently in other areas like unemployment,
which we all know is at a historical high.
Now, to get back to my point about good intentions gone
bad, I would like to caution that the act itself may be open to
abuse and fraud, even if we believe that we really want to help
medically bankrupt people.
The act defines a medically distressed debtor as a debtor
who has medical debts in excess of 25 percent of household
income or $10,000, whichever is less. So imagine a filer with
$70,000 in annual income, which is almost double the average
income in the country. If he accumulated $10,000 in medical
debts, then he or she can file for medical bankruptcy under
Chapter 7.
The problem with this is that a study of bankruptcy filers
by income in 2000 to 2002 show that credit card debts averaged
approximately $42,000 for this group. While such provisions are
unlikely to affect honest debtors, we all know that there are
borrowers who behave strategically when faced with such
incentives.
In the worst-case scenario, such opportunistic debtors
could, by not paying off their medical debt, take advantage of
the high exemptions and the debt discharge provisions of
Chapter 7 to get rid of their high credit card debts.
Further, removing the means testing requirement from
medically distressed debtors and allowing the much higher
homestead exemption would simply perpetuate these perverse
incentives. Doing away with the means test would allow high-
income individuals to walk away from not only the medical
debts, but also all other debts.
Now, the reason we care about this kind of strategic
behavior and these unpaid costly debts is that it has
implications for medical debtors and other debtors who are
caught in a helpless situation.
Study after study has shown that when you make filing for
bankruptcy easier through removal of means testing through
providing high exemptions, credit markets react adversely.
Lenders account for the high risk of lending by raising
interest rates on loans charged or by rationing credit.
Borrowers are more likely to get their loan requests rejected.
Medical service providers pass on the costs of bad debt to
consumers in the form of higher prices----
Mr. Cohen. Dr. Mathur, we are getting into the red world.
Ms. Mathur. Yes. I am almost done. I will--imagine----
Mr. Cohen. You are beyond almost done.
Ms. Mathur. Imagine not getting a loan to pay for your
prescriptions and other medical bills. In short, the lives of
borrowers--particularly honest borrowers--are made worse off.
In my opinion the 2005 law introduced the means testing
requirement to restrict this kind of strategic behavior, and
there is no real justification to amend that law.
To conclude, we obviously cannot wish illness away.
However, some solutions may help families deal with the
situation better. For example, employers and employees could
try to come up with flexible work arrangements that would
enable the employee to function even in the middle of a medical
crisis. Job loss should not be the inevitable result of a
prolonged medical condition.
Finally, the act could be modified to allow debtors to
obtain relief under Chapter 7 only on the medical debts rather
than all of their other debts as well. This may reduce the
misuse of the system by opportunistic debtors.
Thank you.
[The prepared statement of Ms. Mathur follows:]
Prepared Statement of Aparna Mathur
__________
Mr. Cohen. Our next witness is Professor Wright. Professor
Wright is the director of clinical programs, Consumer and
Commercial Law Clinic at the Franklin Pierce Law Center. During
18 years of practice in the public and private sectors,
Professor Wright handled civil trials and appeals in state,
Federal and bankruptcy courts on behalf of individuals and
corporate clients.
His public service included 4 years as a member of the New
Hampshire Workers Compensation Appeals Board, 2 years as
mediator at the New Hampshire Department of Labor, and 12 years
as a hearing officer in the Federal Medicare program. Actively
involved in efforts to improve the Administration of justice,
in 1993 and 1995 he was chair and co-chair of state conferences
devoted to this subject. Professor Wright has been here before.
He is aware of our 5-minute system.
And I would ask you to accept that. You are now recognized.
TESTIMONY OF PETER S. WRIGHT, JR., DIRECTOR OF CLINICAL
PROGRAMS, CONSUMER AND COMMERCIAL LAW CLINIC, FRANKLIN PIERCE
LAW CENTER
Mr. Wright. Thank you. Chairman Cohen, distinguished
Members, good morning.
I have got the button on. Is it? Oh, all right. I am sorry.
How is that? Better? All right.
I appreciate the opportunity to be here to share with you
the perspective that I might offer as a clinical professor, who
is essentially running a legal aid program in which the
students serve as lawyers. Because our focus is on consumer
credit, these days the kind of cases we are handling involve
foreclosure defense, credit card defense and consumer
bankruptcy.
I appreciate the opportunity to speak to the merits of H.R.
901, because in our clinic we have witnessed many examples of
the types of debtors which are described in H.R. 901 as a
medically distressed debtor. I would like to give you a couple
of examples of the profile of these clients. And I think this
will be instructive, because within H.R. 901 there is actually
a very thoughtful definition of the medically distressed
debtor.
The issue that we spend so much time talking about of the
percentage of people who are driven to bankruptcy by massive
debt is only one of the definitions. The other two definitions
actually capture the type of debtor that we most frequently see
as medically distressed. And that is the type of debtor who is
unable to work or experiences a severe and prolonged loss of
income, because they are caring for a family member or they
themselves are stricken with a serious medical condition.
Examples of such clients--we saw one family where the wage
earner was a over-the-road or door-to-door salesman for
Comcast, selling cable subscriptions. And he would drive around
in his own vehicle making his rounds. He was involved in a
head-on accident, head-on automobile collision, which put him
in the hospital for 6 weeks.
When he was released and undergoing physical therapy, he
really couldn't pursue his work of driving and walking and
knocking on doors, so he got behind on everything. He had
insurance, because he worked for Comcast, but what he didn't
have was any means of paying his mortgage, so that fell into
default along with this car payment and everything else.
Another example is a young couple. They owned a
condominium. The husband, who worked as a roofer, developed
cancer. He could not work, as he devoted his full time and
attention to handling that medical problem. He was successful
in overcoming the cancer, but during the time he was out of
work, his mortgage fell into arrears, his car was repossessed,
and he was not able to pay the credit card bills and other
bills for the family.
Net result was he had to file bankruptcy to clear up the
deficiency after his condominium was foreclosed. Again, this is
an example of someone who, because of the medical condition,
was unable to pay the ongoing bills to hold on to the
necessities--house, car, et cetera.
And finally, we just took a case in this last week where
the individual who is the wage earner, who happened to be a
mortgage broker, made a lot of money during the bubble, had a
heart attack while he was driving, and the impact of the
accident and the heart attack had him laid up enough that he
ran up $200,000 in medical bills. Then he died, leaving his
widow with a house in foreclosure, plus all these medical
bills.
This last situation illustrates what I think is the
significance of high medical bills. They are often a symptom or
an incidental impact caused by a severe medical problem, which
is really the hallmark of the distressed medical debtor.
Now, H.R. 901 is very skillfully crafted and carefully
crafted and narrowly drawn to provide relief to people who are
truly medically distressed debtors as defined in the last two
parts of the definition--that is, who have experienced either
loss of child support, alimony or who have lost their income
because of a medical catastrophe. The first definition, of
course, is the one where there is massive--or actually medical
debt which reaches the levels that we discussed earlier.
Now, what is the relief that 901 provides? It is an
enhanced version--an enhanced amount of the homestead
exemption. As you know, it would increase the homestead
exemption to $250,000 regardless of whether the debtor is
filing using the Federal exemption, which would otherwise only
be $20,200 for homestead, or the state exemptions.
It raises both of those exemption levels to $250,000. And
this is laudable, because it enables a debtor to hold onto the
homestead, even if they lose everything else through a Chapter
7, but it also enables them to have a workable and feasible
Chapter 13, if they are able to remove the value of their
homestead from the liquidation test, which we could talk about.
It is a little technical, but it really is a major plus,
because many elderly people, who have a lot of equity in their
homes, are not able to qualify for Chapter 13, because they
can't pass the liquidation test.
And as I am out of time, I will not speak to the means test
right now, but thank you for the opportunity.
[The prepared statement of Mr. Wright follows:]
Prepared Statement of Peter S. Wright, Jr.
__________
Mr. Cohen. Thank you very much.
I want to thank all our witnesses for their testimony, and
I will start with the questions.
And first of all, Professor Wright, I would like to ask you
what your thoughts are on the means test.
Mr. Wright. Well, generally or as it applies to this 901?
Mr. Cohen. As it applies to this bill.
Mr. Wright. So as----
Mr. Cohen. Dr. Mathur made a point that possibly high-
income individuals could get away with things. Is there a way
to see to it that high-income individuals don't and that it is
strictly tailored to medical bills?
Mr. Wright. If we viewed 901 as a whole and appreciate that
the only way the homestead exemption benefits a debtor is if
that debtor has substantial equity in their house, you are
going to eliminate a lot of debtors right off. You are going to
eliminate all the debtors who use their homes as ATM machines,
so-called during the bubble, those who did practice abusive
borrowing.
You are really going to be targeting and benefiting elderly
people, who worked their whole life to pay off their mortgages
and then as they approach their retirement, they simply want to
be able to hold onto their homestead. Those debtors who then
face a catastrophic illness, which interrupts their income or
saddles them with medical debt, will be able to retain their
home. They don't need to be tested under the means test,
because they are not gaming the system.
To be the victim of a medically--well, as someone, I think,
the Chairman may have put it--the medically lost life lottery
to be suddenly stricken with a serious medical illness is not
part of gaming the system. They don't need to be means tested.
Mr. Cohen. Thank you, Dr. Wright.
Dr. Mathur, let me ask you this. As Professor Wright has
mentioned and I have said before, the lottery of life, the
people that have these great health care disasters,
catastrophic illnesses, is that it just happens. It is, most
cases, not just unfortunate.
Do you agree that some people who get catastrophic
illnesses--cancers, heart disease, whatever--end up getting
massive medical debt that causes some people to go into
bankruptcy?
Ms. Mathur. Absolutely. I absolutely agree that there are
people with medical debt who will go into bankruptcy, and I
believe that the current bankruptcy code in fact allows those
low-income debtors to take advantage of the bankruptcy filing.
Mr. Cohen. Those who, debtors?
Ms. Mathur. The low-income.
Mr. Cohen. What if you are not low income, but you got
cancer and you have been wiped out?
Ms. Mathur. And then if the means test shows that you still
have an ability to repay some part of your debt, then I believe
that the current bankruptcy system will----
Mr. Cohen. So you don't believe if you have got tremendous
medical debt and you are a middle-class person and you have got
some income, but you have got enormous debt, hundreds of
thousands of dollars worth of debt, and you have got cancer and
maybe, you know, maybe you potentially lose your job, that
there shouldn't be relief somehow fashioned for you?
Ms. Mathur. I think the chapter code redeeming procedure
allows for the medical expenses to be deducted in calculating
what your ability to repay is, so I don't see what the new act
is trying to achieve by saying that we should not have means
testing at all.
Mr. Cohen. Judge Morris, can you explain why that is
important that we give some relief to people who have been
wiped out because of the lottery of life?
Judge Morris. I think this is hard for me to explain. And I
have been listening to the means test question here. And once
upon a time before 2005, you wouldn't confirm a Chapter 13 plan
unless the unsecured creditors were going to get a substantial
amount. Now you confirm a .003, which is basically a Chapter 7.
And the reason you do it is for some of the matters that they
talked about.
You know, I see the medical people in--the medical debtors
in front of me all the time. They walk in. In my testimony I
talk about the five--my written testimony--my courtroom deputy
coming in to me and saying, ``It is going to be a hard day
today, Judge.'' ``Why is it going to be hard today?'' ``There
are five women in the courtroom with turbans on. Your Honor,
you are going to have to hear the story of those five
cancers.'' And sure enough, I have to hear the story of the
five cancers.
The means test is simply meant that it moves them to
Chapter 13. It just simply means that it is more expensive for
them to file. Those people needed--most of those people need to
be in 7. They need to be able to get rid of some debt and move
on.
We are in a wonderful place in this world, in this country,
in this here that we have the ability to file bankruptcy, that
we have an ability to start anew. And sometimes we need to just
take and look, and they need to be able to cut their losses and
move on.
I don't agree that--the means test is just more expensive.
It just makes it more difficult for them to come in and forgive
the debt and move on.
Mr. Cohen. Thank you, Judge.
Dr. Mathur, are you familiar with the study by Melissa
Jacoby and Miyra Holman published in the Yale Journal that
debunks the 2005 Department of Justice survey that you have in
your written testimony?
And being familiar with it, do you still hold to your
belief that this 2005 DOJ study has validity?
Ms. Mathur. I think the Jacoby study tries to say that
there could be a lot of hidden medical debt that you are not
actually observing in the bankruptcy filing. And that, you
know, that is entirely possible, and we have debated that issue
a lot of times.
So that is why it makes more sense to not sort of rely on
just those kind of, you know, bankruptcy statistics, but to
actually see what household surveys are saying about medical
debt and how, you know, what is really happening to medical
debts over this period.
And there is nothing to suggest that there has been, you
know, that tremendous a jump that, you know, medical
bankruptcies should have risen by 50 percent in the 7-year
period, because if that had really been the case, then when
bankruptcies went up, you should have seen a tremendous
increase in the medical debts as well, which you don't see.
So I completely agree that there could be problems with the
DOJ study, but that doesn't deny the fact that they--you know,
that neither of those studies has conclusively proven that
medical debts are a significant fraction of all bankruptcies.
Mr. Cohen. Thank you, Doctor.
Mr. Franks, you are recognized.
Mr. Franks. Mr. Chairman, could I pass on to Mr. Coble for
his questions?
Mr. Coble. I thank the Ranking Member, thank the Chairman.
Good to have you all with us today.
Dr. Mathur, this is not unlike much proposed legislation.
There are loopholes. What loopholes do you think are most
unfair in this bill?
Ms. Mathur. I think the biggest loophole in the bill is the
requirement to do away with the means test, because I think the
reason we had the means test instituted in 2005 was because we
saw a lot of instances where people were exploiting the system
by having a lot of wealth in their homes, having a lot of
incomes, but they had the choice to still file under Chapter 7
bankruptcy and have their, you know, million-dollar debts paid
off and still retain a million-dollar house.
And so I think the biggest loophole that could be exploited
under the Medical Bankruptcy Fairness Act is the fact that
high-income debtors could take advantage of the system to
basically have the same provisions that they had before 2005,
which is, you know, you accumulate a certain amount of medical
debt and you still get all the advantages of Chapter 7.
I think if we had a system where we said you could only do
away with the medical debts by filing under Chapter 7, then,
you know, I think that would correct some of these loopholes.
Mr. Coble. I thank you, Doctor. It seems to me that this--I
will qualify this is my opinion--I think Obamacare has failed
its stated goal of decreasing health care costs and probably
will in fact increase health care cost. Given the incentives in
H.R. 901, will this bill not increase health care costs, making
the health care system perhaps even more unsustainable?
Ms. Mathur. Yes, I think that any time we sort of--if we
think that we are going to keep absorbing the cost of all these
unpaid debts, you know, infinitely into the future and that it
is not going to have an impact on how people behave and how
creditors and how lending markets behave, then, you know, you
are wrong.
At some point all of these unpaid debts and all of these,
you know, huge costs that we think we are subsidizing, at some
point they are going to tremendously increase costs on
borrowers.
Mr. Coble. Your Honor, Chapter 7's means that there was
never intent to inquire into whether the causes of someone's
bankruptcy were either good or bad, it seems to me----
Judge Morris. Right.
Mr. Coble [continuing]. But simply whether the debtor had
the income sufficient to repay a substantial or meaningful
portion of unsecured debt.
Do you believe--well, strike that. It is my belief, and I
will ask you if you believe this, that Congress may be opening
a Pandora's box if it started to pursue down that path of
choosing which kinds of debt are ``good'' or which kinds of
debt are ``bad.'' What do you say to that?
Judge Morris. I don't disagree with you, but I think the
door that opened in 2005, and I think this might go some ways
to helping some people that need the help.
Mr. Coble. I thank you both.
And, Professor, I don't want to ignore the gentleman from
New England. My favorite New England state, by the way,
Professor, is New Hampshire. Professor, do you have the fear
that abusive filings might promote or distract from the court's
ability to process promptly the cases of the truly needy--that
is, those who may abuse it?
Mr. Wright. Well, I think that abusive filings are never
good for the system, but I don't believe abusive filings will
be any easier if H.R. 901 were to pass because of the way it is
drawn.
Mr. Coble. Dr. Mathur, do you want to weigh into that?
Ms. Mathur. I am not clear why it would not, because, I
mean, the fact that you are doing away with the means test does
mean that there would be high-income people with the ability to
repay, who you are now saying should be excused from using
them.
Mr. Wright. The reason I think that the chances are very
low is because, at least from my experience, when a family or
an individual bases one of these catastrophic injuries that
interrupt income flow, you no longer have a high-roller high-
wage earning debtor.
They--in my cases, in fact--I mean, I don't want to say in
all cases they are going to pass the means test, but given the
way we calculate current monthly income by looking at the last
6 months, if there has been a tragic and unanticipated medical
problem, whether it is an injury or a disease, a lot of times
the income is so disrupted that the means test isn't really
going to be an issue.
Mr. Coble. I got you. Thank you, Professor.
Mr. Chairman, I want you to note that the red light has
illuminated, and I am yielding back.
Mr. Cohen. Thank you, Mr. Coble. I appreciate your
continual courtesies.
Now the Chairman, Mr. Conyers, is recognized.
Mr. Conyers. Thank you.
I would like to ask Dr. Aparna Mathur if when Professor
Wright was giving his explanation about the nature of medical
indebtedness, did he say anything that disturbed you or that
you didn't agree with?
Ms. Mathur. I think the kind of examples that Professor
Wright gave would typically file under Chapter 7 bankruptcy,
and they would meet the means test. But they are the kind of
people that he was speaking about with no incomes, who have
mainly had a catastrophic, you know, medical expense.
You know, from all that I think I understand about how the
bankruptcy code currently works, those people should meet the
means test, and they should be allowed to file under Chapter 7.
The people who will not meet the means test are people who
do have an ability to repay, and I think that they--you know,
the current system, the way it is functioning would--you know,
should make them repay a part of those debts. I don't see why
we need to do away with that particular feature of the current
code.
Mr. Conyers. Professor Wright, did she accurately interpret
your examples?
Mr. Wright. Yes, I think she is right. In all three of
those cases, those individuals would not have a problem with
the means test. In fact, in the very first one with the car
accident, we put them into Chapter 13 to save his home. So even
though he passed the means test as consumer bankruptcy lawyers
say, meaning he wasn't forced to go into Chapter 13, he
voluntarily went into 13 to catch up on a delinquent mortgage
and to save his home.
So, yes, she did accurately gauge the impacts, at least on
those three cases. They would not have been--they would not
have been caught up or forced to file a different chapter than
they chose.
Mr. Conyers. Well, does that mitigate your examples, then?
Mr. Wright. No, because the examples--well, I
unfortunately--I don't have an example of a high-roller who
suffers a major medical calamity and then runs up against the
means test, partly because my clinic only represents low-income
people. I mean, we are not allowed to represent the high-
rollers or just the upper middle class, because we don't do
that.
But I really--I still--when I studied this in preparation
for coming down here, I don't really understand all the fuss
about the means test, to tell you the truth, because I really
think that people who are overtaken by one of these terrible
medical tragedies, if they had any inclination to game the
system, their fight for their lives or for that of a family
member becomes paramount in their minds.
And it certainly would be more convenient for them if they
didn't have to go through all the paperwork that Judge Moore
spoke about and the added expense that lawyers are able to
charge because of the paperwork. But given that they may very
well lose their income as their sole--they are just so fixated,
and their attention and thought is all devoted to obtaining a
cure, I think the gaming question is really irrelevant at that
point.
And I also have to say that I don't think that--I just
don't quite understand how someone can game or contrive or
conjure up medical bills to try to invoke this as a way to game
the system. I mean, even at the level of $10,000, that is a
little hard to envision, frankly.
Mr. Conyers. Do you agree, Dr. Mathur, with what the
professor said?
Ms. Mathur. I don't believe that people can conjure up
medical bills, but I do believe that you could create the
incentive that if you had medical debt and you had other kinds
of debt, that the incentive to sort of accumulate the medical
debt and not pay it off and pay off the other kinds of debt,
you might perverse those kinds of incentives, because you know
that if you had a certain amount of medical debt, then your
lawyer would tell you, ``Well, you know, if you had so much in
medical debt, then you could take advantage of Chapter 7.''
So a person who--I am not saying that they are going to
conjure up an illness, but you could change incentives for them
by saying, you know, if you had so much in medical debt, then,
you know, you can take advantage of all the Chapter 7
exemptions and the high exemptions and the debt discharge that
comes with that. Those are the kinds of incentives that I am
talking about.
Mr. Conyers. That does not sound persuasive to me.
Judge Morris, what is your experience in this area?
Judge Morris. Well, as I am listening, the one thing I am
thinking is now we have it, a system where the medical debt is
hidden as credit card debt or second mortgages, because the one
thing you want to do is not go bankrupt against your doctor,
because you will be fearful that the doctor will not treat you.
Mr. Conyers. Of course.
Judge Morris. So right now the debtors come in, and they
paid the medical bill with--their co-pays with the credit card.
They have paid it by taking out the second mortgage.
I had personal experience of a dear friend who lost his
wife to cancer. It was the secondary cost, too. Tell me,
anybody, if you have a family member that needs a heating pad,
if you have a family member that needs a humidifier, and in the
mail comes your checks, those little credit card checks, that
is not going to be attributed to medical bills.
So when I hear this talking about that they will now run up
a medical bill as opposed to a credit card bill, when in fact
it has been the opposite right now, where they have been
running up a credit card bill in order to maintain the medical
care for their family, it just seems unconscionable to me.
Let us have a real--let us have a real reason for the
bankruptcy. And if the real reason for the bankruptcy is a
medical catastrophe, then why not give people like that in
those situations a break?
Mr. Conyers. Do you agree, Dr. Mathur?
Ms. Mathur. I think that it all comes down to how would you
in your bankruptcy--Medical Bankruptcy Fairness Act define what
is a medical debt. I mean, it is then we need the act to be
clearer on what you are saying----
Mr. Conyers. There is no question about what constitutes a
medical debt.
Ms. Mathur. Yes, but that is what Judge Morris just said,
that we cannot distinguish between credit card debt and medical
debt. And so if that happens to be the problem, then you are
going to see $10,000 in credit card debt, and you won't know if
it is----
Mr. Conyers. But that is the problem. That is what she is
saying. The medical debt is hidden by using your credit cards.
Ms. Mathur. Yes. And so how would you----
Mr. Conyers. So don't you agree with her? Or you don't
agree with her.
Ms. Mathur. So what I want to know is if there is----
Mr. Conyers. Do you agree or not with her?
Ms. Mathur. Yes, there is some medical debt on credit card
debt. Absolutely.
But even if you are saying that that is--I mean, there are
two issues. If you are saying that, you know, that debt has
somehow been going up and that is causing the bankruptcy, there
are no data to support that either, because even if you look at
total credit card debt, that has gone up by .3 percentage
points between 2000 and 2007.
The other issue is if we say that, you know, is credit--are
we going to sort of try to uncover all the medical debt that
people have on credit cards and, you know, is the second
mortgage really a form of medical debt, then the act needs to
be clear on what all it is going to--you know, how are we going
to distinguish all the sources of medical debt rather than just
what we see as a medical bill.
Mr. Conyers. Well, Professor Wright was complementing our
drafters on putting together a proposed piece of legislation
that does take care of some of that problem.
Isn't that right, Professor?
Mr. Wright. Yes. Yes, I think that the--when I sat down and
carefully studied the act, I was impressed by how thoroughly
the drafters understand the problem of medical catastrophe
first and then applied it to the plight of debtors.
So you covered all the possibilities--massive debt, then
prolonged interruption of income from earnings, and finally
interruption of child support, alimony and support, the
domestic support obligations, as they are called. So you
covered all the main drivers that force people into bankruptcy
when they have lived through or are living through catastrophic
medical problems.
Mr. Conyers. Dr. Mathur, do you agree more with Judge
Morris or Professor Wright?
Ms. Mathur. I have problems with both.
Mr. Conyers. You probably agree with some of both, what
both are saying.
Ms. Mathur. I think that if you prove that that actually
drove the bankruptcy, then we have the case that we have a
medical bankruptcy.
If, like in this Himmelstein study, we simply found that
someone reported that at some point in the previous 2 years we
had, you know, a week's worth of lost, you know, work, and then
we say, ``Okay, that is a medical debtor and that is a medical
bankruptcy,'' then that is overstating the problem.
I think if we had a way, a convincing way of showing that,
you know, this is what drove the person to bankruptcy, then I
would agree with Professor Wright.
Mr. Conyers. Well, all you have to do is show that their
medical debt is on the credit card and that--what else--what
more would you need?
Ms. Mathur. Pardon me?
Mr. Conyers. What else would you need to prove what the
real costs of the--the real reason for the credit card
indebtedness was because of medical bills?
Ms. Mathur. Yes, if you can show that the credit card----
Mr. Conyers. It is easy. All you do is read. It says it is
from X hospital.
Ms. Mathur. Yes, I understand that.
Mr. Conyers. $20,000. You don't need any more than that, do
you?
Ms. Mathur. Yes, that is absolutely credible. Yes.
Mr. Conyers. Well, then you agree with both Morris and
Wright.
Ms. Mathur. I agree that if we could have a procedure for
determining exactly where the debt was. So, for instance, she
said if----
Mr. Conyers. It is easy. You have to identify. On a credit
card you have to--when you are going into bankruptcy, you have
got to identify where the indebtedness came from.
Ms. Mathur. Right.
Mr. Conyers. You got to name it. You can't just say
$150,000 worth of debt. They are saying, ``What debt?'' Well,
when you see it is from doctors, clinics and hospitals, that is
pretty obvious where it came from.
Ms. Mathur. I completely agree with that. I think if you
had a certain way you could make the debtor show that there was
so much medical debt on credit cards, then that is exactly the
way to show how much medical debt you had. But if you say,
``Oh, I took out a second mortgage because of this,'' or ``I
did''--you know, if there is no way of actually tracking it,
then I don't think----
Mr. Conyers. But there is a way. When you go in--have you--
are you familiar with--well, no, you are not a lawyer. You are
an economist.
Professor Wright?
Mr. Wright. Well, the fact is on Schedule F of the official
forms, which every debtor must fill out, there is a column as
part of the description of unsecured debt where the debtor is
required to say what was the debt for.
So if you have a $15,000 charge because you paid a clinic,
it should say Capital One or Visa, and then the consideration
for the debt is where you would state this was for the clinic
or the hospital for whatever the care was, and then the total.
So there is provision currently in the official forms for
revealing that information.
Mr. Conyers. You should know, Dr. Mathur, that there is no
way you can go through a bankruptcy proceeding without
identifying the source of your indebtedness.
Ms. Mathur. I thought that was the point that Judge Morris
was making, that there is so much debt on credit cards, there
is so much, you know, other kinds of debt that is arising
because of medical illnesses that we are not able to track.
If that was the point that she was making, then, you know,
that is what I thought she was making. If you are saying that
we can track medical debt on credit cards, then you can
easily----
Mr. Conyers. Well, you can. And they do.
Ms. Mathur. Exactly.
Mr. Conyers. That is the only way they can pay it.
Ms. Mathur. Exactly.
Mr. Conyers. Because they don't want to----
Ms. Mathur. Then I think the best----
Mr. Conyers [continuing]. They don't want to name----
Ms. Mathur. Then I think----
Mr. Conyers [continuing]. They don't want to----
Ms. Mathur. And I think that the best modification you
could make to the act would be to say that you would only
forgive the medical debt under Chapter 7, because if you are
trying to help medical debtors, then that is exactly what you
want to do.
Mr. Conyers. But sometimes you go into a different form of
bankruptcy, because you don't want to lose your house. That is
what Professor Wright was saying.
Professor Wright, as I close down, do you know how many
pages this--that is in a statement, a means test? Have you seen
this?
Mr. Wright. I am familiar with the----
Mr. Conyers. No, I mean have you read it?
Mr. Wright. No.
Mr. Conyers. This is more complicated than the average
income tax form.
Mr. Wright. Oh, you are just speaking about the code
itself?
Mr. Conyers. No, I am speaking about the means test--Form
22A.
Mr. Wright. Yes, in fairness and so the Committee is fully
apprised, most bankruptcy practitioners use software, which
greatly eases. To draw a rough analogy, it is like the
difference between filling out the IRS forms for your taxes and
using TurboTax. There are fields that you can fill in, which
does ease--just so you know, it does ease the burden of that.
So it is not as onerous as you might think, looking just at
the----
Mr. Conyers. Yes, but suppose a person going into
bankruptcy can't afford that?
Mr. Wright. Well, that is true. Or if they can't afford the
lawyer, who has the software----
Mr. Conyers. Exactly.
Mr. Wright [continuing]. And they don't have a clinic like
mine that does it for free, yes, that is a problem. That has
been a problem with the means test all along.
Mr. Conyers. May I give you this form as a thank you for
coming before the Committee and invite you to read it? To me it
is very complicated. Now, to tell me that, ``Don't worry. Your
lawyer has a computerized form to expedite this'' is--most
debtors can't afford that.
Am I incorrect, Judge Morris?
Judge Morris. Not only can most debtors not afford it, I
think it can be discouraging, if you do not have an attorney.
If they start reading it, it is more difficult than the income
tax return, as you said, so it is very discouraging. So if you
don't have an attorney that says, ``I understand this. Let me
walk you through it,'' then you are discouraged.
And if you add on top of that someone that is going through
a medical catastrophe that has to file insurance forms, which
we all know are also complicated----
I mean, I have the same insurance you do. My insurance is
good. And yet I get turned down. Right. And I call them up. We
are blessed. I get to pick them up on the--and honestly, when
they changed my first name to Judge, people answer the phone a
little quicker. Well, not everybody has that asset. But even I,
when I have to go through all the medical insurance forms, find
that difficult.
So in the middle of trying to heal, in the middle of going
to chemotherapy or going to physical therapy or going to the
doctor, and like I had in front of me not this past week, but a
month ago, where their child was dying, and I was insisting
that somebody come to court not knowing that a child is dying,
they have to go through that test, appear at the first meeting
of creditors, have the U.S. trustee try to decipher are not
whether or not they are abusive, and do all of that at the same
time.
I think there is something going on at the table here,
though, that I think I just need to give a little insight from
me. Dr. Mathur talked about lending markets and credit markets.
Professor Wright and I are the boots on the ground. We look
in the eyes of the people that are filing. We don't look at
statistical data. We see what comes in front of us. We can't
look at statistical data. That is not our job. Our job is to
deal with the case that is in front of us and the people that
come before us asking for relief.
By its very definition, bankruptcy has to do with the
debtor. Yes, we are fair to creditors. Yes, we listen to
creditors. Yes, we follow the law. That is what we are sworn to
do, and we do it. But by definition we are looking at those
debtors, and we see them eyeball-to-eyeball.
Mr. Conyers. Thank you, Judge Morris, because you reminded
me. Heaven help the poor debtor that goes into a law office
where the lawyer is not familiar with bankruptcy proceeding.
Judge Morris. Yes. Exactly.
Mr. Conyers. And I think----
Judge Morris. I just asked for the license of two New York
State people because of what they did to debtors by not knowing
bankruptcy law.
Mr. Conyers. Yes.
Thank you, Mr. Chairman.
Mr. Cohen. Thank you, Mr. Conyers.
And we will now recognize Mr. Franks, and we will do these
5 minutes. We have votes coming up, and we should----
Mr. Franks. I will stick to the 5 minutes, I promise.
Mr. Chairman, I just wanted to just out of courtesy here,
not trying to prove any special point, but I had mentioned in
the opening statement that 53 percent or a majority was in
favor of the repeal of Obamacare, and this is a Rasmussen poll
done on--it came out July 12th, just a few days ago. And 53
percent of the voters nationwide favor the repeal of the
recently passed national health care law.
And I don't say that to prove anything, because I don't
think we should base policy on polls. I just wanted you to know
that I was being forthright when I mentioned that statistic to
you.
And also, Mr. Chairman, I am hoping that I can put into the
record the Obama administration report confirming that the
health care law actually increased the health care spending.
And I will ask it to be placed in the record.
Mr. Cohen. Without objection.
[The information referred to follows:]
__________
Mr. Franks. All right.
Mr. Chairman, I guess here is the thing I hope we are not
missing here is that all of us want for there to be a way for
people in crises to be able to have a bankruptcy action. I want
that very much. I have never had to do that, but I have been so
poor I couldn't pay the lawyers to file for bankruptcy. And so
I always want that.
But we are losing sight of what we are really talking about
here. We are talking about doing away with a means test, and I
know the means test can sometimes be complicated. But apart
from that--and we are not talking about a catastrophic standard
here--apart from that, someone like myself, you know, could
under this--under this law, if I--you know, I am tall, dark and
harelip.
If I decide to go out and get plastic surgery, which
probably my wife might even appreciate--I don't know--or a
tummy tuck or something, my insurance company wouldn't pay for
that. But that would put me over the $10,000 amount. And even
if I had a lot of money, I could game the system pretty
significantly.
And here is the problem. I realize maybe that doesn't
happen as much as a lot of people try to portray. But whenever
it does, whenever there is a bankruptcy, whenever someone
doesn't pay--especially if they have it--that means someone
else either pays or doesn't get the care. And that is the thing
here that we always miss.
We think that somehow there is just a magic way to wipe
these things clean. But unfortunately, it doesn't work that
way. It means that someone else is deprived of care or has to
pay for it.
And I want everybody to have access to care. And I wish
everybody could have free care, if it didn't mean that we had
to force somebody else to pay for it. That is the problem with
socialism is after a while you run out of other people's money.
That is a quote I stole, but let me just quickly ask a couple
of questions here.
Judge, I will ask you. Under this legislation, if I had
$100,000 in credit card debt and I did my tummy tuck and my
plastic surgery for $10,000, could I get rid of the $100,000 in
the process?
Judge Morris. I don't think so, because I think both you
and I, again, are under the same medical care. We also
understand we have our health savings plan. They are not going
to pay for your tummy tuck.
Mr. Franks. That is right. But I mean----
Judge Morris. So and I think you could be----
Mr. Franks. But that means I am in debt now $10,000,
because I didn't want to pay for it either. And so I am coming
to you----
Judge Morris. But you are not going to get a medical--you
are not going to get a medical reprieve for that.
Mr. Franks. Well, I am saying, what would change that? I
mean, that is money I owe for medical care, and there is
nothing in this legislation that says it can't be a tummy tuck.
Judge Morris. I don't think that is called medical care,
but I will let you legislate that.
Mr. Franks. All right. Well, I would challenge the majority
to counter that, if that is true.
Let me suggest to you--ask you also, then. If I lived with
someone, if my wife lost her income for 4 weeks in the last 3
years, would that qualify me under this?
Judge Morris. I don't know the answer to that.
Mr. Franks. Well, I am suggesting to you the answer is yes,
according to the law.
And I am just saying, Mr. Chairman, that--and I am done
here--the bottom line is that we all want a bankruptcy to be
there for those people who desperately need it, and I know that
happens. But we don't want to have a system that just says all
you have to do is to come up with $10,000, and you can game the
system, and in the process make either somebody else pay for it
or deprive someone else of medical care.
Let us help those who really need it, and let us don't let
this socialist train keep roaring down the track and absolutely
decimate everybody long-term.
And with that, I yield back.
Mr. Cohen. Thank you, Mr. Franks. I appreciate you cutting
your questions short and Mr. Johnson for yielding, as I have
corrected Ms. Chu, because we do have votes.
I would like to thank all the witnesses for their testimony
today. Without objection----
Mr. Johnson. Oh, oh, oh, Mr. Chairman, no, I didn't yield.
If I could have----
Mr. Cohen. Mr. Johnson, quickly, because we got a vote.
Mr. Johnson. Yes, I feel compelled.
Mr. Cohen. Sorry. I got the wrong information.
Mr. Johnson. Okay. All right.
The Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 was a revision to bankruptcy law so that it would make
it more difficult for consumers to avoid payment of credit card
debt. Isn't that correct, Dr. Mathur?
Ms. Mathur. The 2005 law was to prevent against
exploitation of the system by high-income borrowers who have
the ability to repay that debt, but were still filing----
Mr. Johnson. By high-end borrowers, you say?
Ms. Mathur. By high-income borrowers.
Mr. Johnson. High-income, but it----
Ms. Mathur. Who had the ability to repay.
Mr. Johnson [continuing]. Mostly affects, though, lower
income individuals----
Ms. Mathur. No, I don't think that is true, though.
Mr. Johnson [continuing]. Middle-class people.
Ms. Mathur. I don't think that is true, though, because as
Professor Wright, I am sure----
Mr. Johnson. Well, let----
Ms. Mathur [continuing]. Will agree that a lot of people
who were earlier able to file under Chapter 7 are still able to
do so.
Mr. Johnson. Well, let me ask Judge Morris, who practices
in this area daily as a bankruptcy judge.
Judge, how long have you served in bankruptcy court?
Judge Morris. Well I have been a judge for 10 years.
Mr. Johnson. And----
Judge Morris. And before that I was the clerk of the court
in Georgia.
Mr. Johnson. Okay.
Judge Morris. And in New York. I know. It is a difficult
move, but I did it.
Mr. Johnson. Yes, yes. Well, that is all right. Did you
have experience under the old bankruptcy law?
Judge Morris. No, actually, I did not. I did not practice
bankruptcy law at the time. But what I did practice was family
practice.
Mr. Johnson. I see.
Judge Morris. I had a domestic practice, so I do
understand, and sent some people to bankruptcy lawyers, so,
yes, I know a lot about that.
Mr. Johnson. Okay.
Judge Morris. And one thing I saw is the means test could
have possibly been corrected, if you had just simply changed
the exemption in five states.
Mr. Johnson. Well, exemptions in Georgia, by the way, are
quite puny.
Judge Morris. Exactly. Same thing in New York. As the law
was coming into effect, New York State changed their law. It
was only 10,000 in equity in a home, and they changed it to
50,000 in response to the law.
Mr. Johnson. I think Georgia was----
Judge Morris. No bankruptcy person had anything to do with
it.
Mr. Johnson. Yes. I think Georgia was--and still is--$7,500
equity.
Judge Morris. But basically, you would have gotten rid of
most of the, I think, at least from what I hear, if you just
change the five states that had unlimited amount.
Mr. Johnson. So this is an ant being killed by a
sledgehammer by their 2005 so-called Abuse Prevention and
Consumer Protection Act.
But isn't it a fact that in your testimony, Ms. Mathur--Dr.
Mathur, you state that it is surprising that the Medical
Bankruptcy Fairness Act focuses on medical debt to the
exclusion of other debtors in the current economic climate? You
state that. And are you suggesting that this bill should be
expanded to other types of debtors?
Ms. Mathur. I am suggesting that the reason why you are
having hearings on this bill is because of the Himmelstein
studies, and if we did not have those studies, which are
flawed, then we would not be sitting here.
Mr. Johnson. And should medical debt, though, get special
treatment, especially since Americans, due to no fault on their
own, fall victim to sickness and disease?
Ms. Mathur. There are debtors who are in bankruptcy for no
fault of theirs, the people who are losing jobs, the people who
are going through painful divorces. And we need a policy that
either helps all of them, which I think the current bankruptcy
code does, and we don't need this bill.
Mr. Johnson. Well, you know, perhaps high-cost or high-
income individuals, million-dollar homes, that kind of thing,
may not need it, but certainly working people who may be
overextended on credit for whatever reason, whether or not it
was for a pair of shoes or whether or not it was to pay a
medical bill for a doctor for treatment that they need on an
ongoing basis to remain able to pay the bills----
Ms. Mathur. Absolutely. And I think----
Mr. Johnson. And I just think that we need to have some
heart for regular working people, who get caught up in the
economic conditions that they did not create.
Ms. Mathur. Absolutely. And I think those kind of people
will be helped--are being helped under the current code.
Mr. Johnson. Well, I take exception, and I believe that
people are being hurt. Even if you can't go to court unless you
have an attorney, you cannot pro se file anymore for--and get
accomplished in bankruptcy what you could have prior to the
2005 changes. You have got to go through a lawyer, and then
even lawyers are not capable, some of them, of having the
proper tools to produce a satisfactory result in bankruptcy
court.
So with that I will conclude. Thank the witnesses for
coming.
And, Professor, I appreciate the work that you do with your
indigent persons.
Thank you.
Mr. Cohen. I thank all the witnesses. Without objection,
Members have 5 legislative days to submit additional questions.
You will have the opportunity to respond to them, and I hope
you will do them promptly as possible. They will be part of the
record.
Without objection, the record remains open for 5
legislative days for submission of any other additional
materials.
Thank everybody for their time and patience. The hearing of
this Subcommittee is adjourned, and we will vote. Thank you.
[Whereupon, at 1:28 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Post-Hearing Questions from the Honorable Cecelia G.
Morris, United States Bankruptcy Judge, Southern District of New York
Response to Post-Hearing Questions from Aparna Mathur, Ph.D.,
Resident Scholar, American Enterprise Institute
Response to Post-Hearing Questions from Peter S. Wright, Jr., Director
of Clinical Programs, Consumer and Commercial Law Clinic, Franklin
Pierce Law Center