[Senate Hearing 111-425]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-425
 
     MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH START? 

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                            OCTOBER 20, 2009

                               ----------                              

                          Serial No. J-111-58

                               ----------                              

         Printed for the use of the Committee on the Judiciary



















     MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH START?
















                                                        S. Hrg. 111-425

     MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH START?

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 20, 2009

                               __________

                          Serial No. J-111-58

                               __________

         Printed for the use of the Committee on the Judiciary

                               ----------
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56-473 PDF                       WASHINGTON : 2010 

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel
                                 ------                                

        Subcommittee on Administrative Oversight and the Courts

               SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California         JEFF SESSIONS, Alabama
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
BENJAMIN L. CARDIN, Maryland         LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
                Sam Goodstein, Democratic Chief Counsel
                  Matt Miner, Republican Chief Counsel















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama....     3
    prepared statement...........................................   340
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................     1

                               WITNESSES

Burns, Kerry, Coventry, Rhode Island.............................     4
Edwards, Elizabeth Edwards, Senior Fellow, Center for American 
  Progress, Wahington, DC........................................     7
Furchtgott-Roth, Diana, Senior Fellow, Hudson Institute, 
  Washington, DC.................................................    13
Mathur, Arpana, Research Fellow, American Enterprise Institute 
  for Public Policy Research, Washington, DC.....................    11
Pottow, John A.E., Professor of Law, University of Michigan Law 
  School, Chevy Chase, Maryland..................................     9

                         QUESTIONS AND ANSWERS

Responses of Diana Furchtgott-Roth to questions submitted by 
  Senator Sessions...............................................    34
Responses of Aparna Mathur to questions submitted by Senator 
  Sessions.......................................................    41

                       SUBMISSIONS FOR THE RECORD

American Law & Economics Association, Jonathan Fisher, Bureau of 
  Labor Statistics, Larry Filer, Old Dominion University, 
  Department of Economics, and Angela Lyons, University of 
  Illinois, Champaign-Urbana, Department of Agricultural and 
  Consumer Economics, article....................................    46
Bucks, Brian, Federal Reserve Board, International Association 
  for Research in Income and Wealth, Washington, DC, survey......    67
Burns, Kerry, Coventry, Rhode Island, statement..................    91
Edwards, Elizabeth Edwards, Senior Fellow, Center for American 
  Progress, Washington, DC, statement............................    94
Emanuel, Ezekiel J., MD, PHD, and Victor R. Fuchs, PHD, March 5, 
  2008, article..................................................   142
Federal Trade Commission for the Consumer, Washington, DC, 
  November 2006, article.........................................   145
Fraser Institute, Canada, July 2009, article.....................   149
Furchtgott-Roth, Diana, Senior Fellow, Hudson Institute, 
  Washington, DC, statement and attachment.......................   154
Fay, Scott, Erik Hurst and Michelle J. White, Household 
  Bankruptcy Decision............................................   175
Investors.com, David Hogberg, article............................   188
Journal of the American Enterprise Institute, Brett J. Skinner, 
  August 19, 2009, article.......................................   192
Mathur, Arpana, Research Fellow, American Enterprise Institute 
  for Public Policy Research, Washington, DC, statement and 
  attachment.....................................................   196
McNamara, Jane E., President and CEO, Greenpath, Inc., Farmington 
  Hill, Michigan, statement......................................   256
National Bankruptcy Research Center, Houston, Texas, May 2009, 
  study..........................................................   259
Pottow, John A.E., Professor of Law, University of Michigan Law 
  School, Chevy Chase, Maryland..................................   284
Robertson, Christopher Tarver, Richard Eglelhof and Michael Hoke, 
  survey.........................................................   300
Staten, Michael E., Professor Director, Credit Research Center, 
  McDonough School of Business, Georgetown University, 
  Washington, DC, and John M. Barron, Loeb Professor of 
  Economics, Department of Economics, Krannert School of 
  Management, Purdue University, West Lafayette, Indiana:
    Evaluating the Effectiveness of Credit Counseling............   343
    Evaluating the Impact of Delivery Channels for Credit 
      Counseling.................................................   349
U.S. Bankruptcy Court, charts....................................   407
Walton, Sophie, Associated, article..............................   419
Washington, Times, July 26, 2007, article........................   420
White, Clifford J., III, Director, Executive Office for United 
  States Trustees, Department of Justice, Washington, DC, 
  statement......................................................   423
White, Michelle J., University of California, San Diego, 
  California, statement..........................................   430


     MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH START?

                              ----------                              


                       THURSDAY, OCTOBER 20, 2009

                               U.S. Senate,
                     Subcommittee on Administrative
                                   Oversight and the Courts
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:03 a.m., Room 
SD-226, Dirksen Senate Office Building, Hon. Sheldon 
Whitehouse, Chairman of the Subcommittee, presiding.
    Present: Senators Feingold, Franken and Sessions.

 OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR 
                 FROM THE STATE OF RHODE ISLAND

    Chairman Whitehouse. Thank you all very much for being 
here. I want to thank the Ranking Member, Senator Sessions of 
Alabama, for being here. I see my colleague from Minnesota, 
Senator Franken, delighted that he is here.
    As we in Congress continue working on broad legislation to 
reform our broken health care system and ensure accessible, 
affordable health insurance for all Americans, we take 
advantage of this hearing today to examine a particularly cruel 
effect of our current system--the millions of Americans 
drowning in medical debt.
    As health care costs continue to increase, so do the number 
of people who go bankrupt paying essential medical bills for 
themselves or their loved ones.
    Harvard University researchers recently estimated that 
medical debts are a driving force in over 60 percent of 
personal bankruptcy filings. Three-quarters of the medical 
debtors in that study were covered by medical insurance. They 
acted responsibly and thought they were covered, but were 
bankrupted by copays, deductibles, premiums, coverage limits, 
and uncovered expenses.
    Families who think they are protected may be only one 
accident, one injury or one diagnosis away from family 
bankruptcy. Unfortunately, the bankruptcy code does not 
distinguish between debtors driven into bankruptcy by medical 
bills and those who become insolvent through poor planning or 
reckless spending. The Medical Bankruptcy Fairness Act would 
change that.
    If enacted, this bill would waive procedural hurdles for 
filers with high levels of medical debt. It would waive the 
means test and credit counseling requirements, which are 
unnecessary, time-consuming, costly, even humiliating for 
debtors forced to file by medical misfortune.
    In addition, my bill would help make it easier for medical 
debtors to retain their homes in bankruptcy by providing an 
alternative homestead exemption of $250,000. The default 
homestead exemption is determined by state law and varies 
across the country.
    While debtors in my home State of Rhode Island already 
receive a relatively generous exemption, debtors in the Ranking 
Member's home State of Alabama get to preserve only $5,000 of 
home value through the bankruptcy process.
    The Medical Bankruptcy Fairness Act would give medical 
debtors across the country a fighting chance to save their 
homes.
    Finally, too many debtors find themselves unable to file 
cases for a discharge of their debts in a Chapter 7 bankruptcy. 
My bill would make pre-petition attorney's fees non-
dishargeable in bankruptcy.
    This will give debtors the option of paying their 
attorney's fees when they are on firmer budgetary ground after 
completing the bankruptcy, in turn, making less expensive 
Chapter 7 proceedings more viable.
    I look forward to hearing the views of today's panel on 
this proposal and others. Kerry Burns, a constituent of mine 
from Coventry, Rhode Island, will share the story of the loss 
of her young son, Finnegan, to cystic fibrosis. Even though she 
had health insurance, the costs of her son's illness ultimately 
forced her to walk away from her mortgage and declare 
bankruptcy. She is accompanied here at the hearing today by her 
husband, Patrick.
    Elizabeth Edwards works on health care issues as a senior 
fellow at the Center for American Progress in Washington, DC. 
Ms. Edwards has long advocated for health care reform both as 
an attorney and on the campaign trail with her husband. Ms. 
Edwards holds a J.D. from the University of North Carolina and 
has had a distinguished career as an attorney working for the 
North Carolina Attorney General and in private practice. We 
welcome her.
    Professor John Pottow is a tenured professor at the 
University of Michigan Law School, where he specializes in 
bankruptcy and commercial law. Following law school at Harvard, 
Professor Pottow clerked for Hon. Guido Calabresi on the Second 
Circuit Court of Appeals and the Right Honorable Beverley 
McLachlin on the Supreme Court of Canada. His extensive 
scholarship includes work on bankruptcy reform and consumer 
lending.
    Aparna Mathur is a research fellow at the American 
Enterprise Institute, where she has done work on tax and 
economic policy. Dr. Mathur holds a Ph.D. from the University 
of Maryland, where she served both as teaching assistant and 
instructor in economics. She has also worked as a consultant to 
the World Bank.
    Our final witness, Diana Furchtgott-Roth, is the Director 
of the Center for Employment at the Hudson Institute, a think 
tank in Washington. Prior to joining Hudson, Ms. Furchtgott-
Roth was chief economist at the U.S. Department of Labor. From 
2001-2002, she served as chief of staff at the President's 
Council of Economic Advisers. She received her bachelor's 
degree from Swarthmore College and holds a master's degree in 
economics from Oxford University.
    I welcome the witnesses and I call on the Ranking Member 
for his opening statement.
    [The prepared statement of Chairman Whitehouse appears as a 
submission for the record.]

STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE 
                           OF ALABAMA

    Senator Sessions. Thank you. Bankruptcy is referenced in 
the Constitution and it is one of the great things that I think 
our legal system provides. So if a person is too deeply in 
debt, they can wipe out those debts and start over again.
    That has been a classical American principle since our 
founding. In recent years, more and more people are aware of 
those possibilities and more and more filings are made, but 
less than 1 percent of our people do file bankruptcy on a 
yearly basis.
    I would just say that I have never understood and do not 
agree that the means test is any kind of punishment. The means 
test is designed so that if an individual makes at or below the 
median income of the state in which they live, they can file 
and wipe out all their debts under Chapter 7, as they always 
have been able to do.
    But if they make above median income and a judge finds that 
they are able to pay back some of their debts, they should be 
required to do so. That was the whole intellectual basis of the 
bankruptcy bill that we passed.
    Professor Todd Zywicki noted in an article this, quote, 
``Roughly 80 percent of bankruptcy filers earn below median 
state income and so will get tossed out of the means test 
immediately. For that 80 percent, roughly 1.2 million of the 
1.5 million filers in 2004, the means test will be completely 
irrelevant. They will be permitted to file Chapter 7.''
    So there was a real concern in our country that people 
living in mansions were able to bankrupt and not pay their 
hospital and doctors. People who had high incomes, doctors and 
lawyers and other people, were bankrupting against debts when 
they could easily have paid at least a portion of their debts.
    So that was the intellectual basis of the discussion that 
we entered into over a period of years and resulted in 83, I 
believe, Senators voting for the bankruptcy reform bill, over 
80, and I think it is defensible and correct.
    Now, there is a concern about health care and I understand 
that and I respect that. First, we need to get what the true 
facts are. I know one of the studies Professor Warren did 
included gambling as a health care matter, debts and other 
things that may or may not normally be considered and the 
numbers I do not think stand up to be quite as high as some 
people suggest.
    But if a person has extraordinary medical bills and is 
unable to work, they would clearly qualify for the Chapter 7 
and wipe out all their debts and in no way be obligated to file 
under Chapter 13 and pay back a certain portion of them.
    But if they do have high incomes, why should they not pay 
their hospital? If somebody else has got high bills because of 
gambling debts or other things, they have to file under Chapter 
13. So I just would think that you would want to pay back the 
debts if you could, if a person could.
    Remember, a judge would not require an individual to pay 
back all, just that amount that the court finds they are able 
to pay back and if their income is below the poverty level, 
which is about $44,000 for a family of four, then they would 
not, under any case.
    Also, a debtor can still avoid paying back any debts under 
the means test by showing special circumstances, and a serious 
medical condition is a circumstance. Even if a person is able 
to work and has a higher income, if they have higher expenses 
or uncertainty of that income because of a medical condition, 
that can be a special circumstance. A judge can allow them not 
to have to pay back any of that money they might owe.
    So I am looking forward to the hearing. Ms. Edwards, it is 
good to see you and good to have you with us particularly and 
all of the panelists. I would just say this--that I am open to 
the concerns, but I do not believe that we should start 
reversing the means test, which I absolutely believe is a 
healthy thing and I would urge my colleagues to think carefully 
about that.
    Certainly, from our last votes we had in the Senate, most 
people, after a number of years of discussion and debate, 
concluded that people who make above median income, who are 
able to pay back some of their debts should pay them back.
    If you are in poverty, if you have lost your job, you have 
great medical debts, you can wipe those out, as always has been 
done.
    Thank you, Mr. Chairman.
    Chairman Whitehouse. You are very welcome and I thank the 
Ranking Member for his statement. It is not unusual for the 
Ranking Member and I to take different points of view on 
issues, but on more than one occasion, we have already found 
ways to come together and agree on legislation and I hope that 
as this goes forward, this will prove to be one of those areas.
    If I could ask the witnesses, please, to stand and be 
sworn.
    [Witnesses sworn.]
    Chairman Whitehouse. As I said, our first witness will be 
Kerry Burns, who comes to us from Rhode Island. Ms. Burns, 
thank you. I am very grateful that you are here and I very much 
appreciate that Patrick came down with you. Please proceed.

        STATEMENT OF KERRY BURNS, COVENTRY, RHODE ISLAND

    Ms. Burns. Chairman Whitehouse, Ranking Member Sessions and 
members of the Committee, thank you for the opportunity to 
participate in today's hearing. My name is Kerry Burns and I am 
from Coventry, Rhode Island.
    I am here to tell the story of my family's medical debt. My 
story starts in 2004 with the birth of my son, Finnegan. A day 
after Finnegan's birth, he was diagnosed with cystic fibrosis, 
something that shocked and devastated me and husband, Patrick.
    Finnegan was a fighter from the start. After some initial 
difficulties, he thrived in all areas. He was a bright, funny, 
caring and loving little boy who was the light of our lives.
    Finnegan was hospitalized in intensive care for 13 months 
before he passed away this March at the age of 4.5 years old. 
In February 2008, Finnegan became sick with what we thought was 
just a common cold. After several days of vomiting and simply 
not feeling well, Finn's doctors suggested we bring him to the 
hospital to see if he was dehydrated.
    When we brought Finn to the emergency room, the doctors 
ascertained that he had a major bowel obstruction, which 
required surgery. The night of the surgery, Finn went into 
cardiac arrest and we were told by the surgeon that Finn would 
likely not survive the necessary emergency surgery.
    But Finnegan did survive that surgery. He had 6 surgeries 
in his first 9 days in the hospital and survived countless 
others. He was intubated for almost 2 months and then received 
a tracheotomy. Finn was in very rough shape, but slowly and 
amazingly, his condition began to improve. He showed a fierce 
spirit and will to live.
    Finnegan spent a total of 8 months at Hasbro Hospital in 
Providence, Rhode Island. We were then sent to Yale University 
for transplant evaluation. It was determined that Finnegan 
would require a multi-organ transplant and we were transferred 
to Georgetown University Hospital here in Washington.
    My husband and I stayed right by our son's side during 
every step of his fight. To do this, we both had to take leave 
from our jobs. We could not, however, have anticipated how long 
Finn's treatment would last or the ultimate ramifications of 
our decision to be with him.
    During this period, we had only temporary disability income 
and unemployment benefits, which were far less than we had 
earned before. We struggled to pay our monthly bills, including 
our mortgage. As our money dwindled and the bills began to pile 
up, we did everything we could to keep our heads above water, 
including cashing in our retirement funds and selling 
belongings for extra money.
    Once we were sent to Georgetown for care, we sold our 
second car. Family and friends were gracious and generous 
enough to donate money to help us.
    Eventually, the bills piled up beyond our ability to pay 
them. We were forced to default and, despite our circumstances, 
creditors were unwilling and/or unable to help us. They wanted 
money and we simply had none to give.
    The collection calls were unrelenting, upwards of 30 calls 
to each of our cell phones every day, all while we were in an 
intensive care unit willing our son back to health.
    As Finn's hospitalization stretched from weeks to months, 
we had to make difficult decisions about which bills to pay. 
The top priority was retaining ownership of our home and I am 
proud to say that we were able to make our mortgage payments 
through 10 months of Finn's hospitalization. Unfortunately, 
starting this past January, we were no longer able to make 
those mortgage payments.
    The emotional hardship my husband and I endured over the 
course of our son's hospitalization pales in comparison to what 
we have felt since his loss. Losing a child is the greatest 
injury for a parent and something we would not wish on anyone.
    As if this loss were not enough to handle and rebuilding 
our lives without our son was not hard enough, we have been 
faced with financial ruin. When people hear our story and our 
financial problems, it is often assumed that we did not have 
medical insurance to cover Finn's expenses.
    We did have insurance and the vast majority of Finn's 
treatments, totaling nearly $5 million, were covered. We were 
lucky enough that my husband's former employer covered our 
insurance for several months. After that, we had to pay 
extensive COBRA fees to maintain our insurance until being 
approved for state-sponsored health care.
    Our return to Rhode Island from Washington was difficult 
for many reasons. First and foremost, we came home without the 
most important person in our lives. We had so little money left 
that I was selling belongings on eBay to get gas money and toll 
money to return home.
    Back in Rhode Island, we did not return to live in our 
house, unsure of when the foreclosure process would actually 
take it. Instead, we lived with friends. We had difficulty 
renting an apartment because our credit had been ruined. In 
order for both my husband and I to return to work, we need two 
cars. We have only one and will not be able, for some time in 
the future, to obtain the second.
    I had no prior knowledge about how one would file 
bankruptcy and certainly never thought I would be in the 
position to have to do so. I have found that it is a demeaning 
and demoralizing process, one that my husband and I are in 
through no fault of our own. We simply made the right choice as 
parents to be with our son in his greatest time of need.
    In order to file bankruptcy, we needed a $250 retainer and 
a $1,300 filing fee. We actually had to borrow the money in 
order to officially go bankrupt. As if this were not enough, a 
credit counseling class is required both before and after the 
filing, with fees in addition to those of the filing.
    My husband and I sat down to take this class online and 
were surprised by the tone of the questions, which seemed quite 
insulting and which included those about why we were going 
bankrupt and how we could have avoided the situation in which 
we currently find ourselves. In addition, the course required 
us to recalculate and resubmit the financial information 
already submitted to our lawyer.
    I believe the Medical Bankruptcy Fairness Act, introduced 
by Chairman Whitehouse, would help families like mine recover 
from medically-based financial hardship. As I understand it, it 
would waive some of the procedural hurdles to bankruptcy 
relief, including the humiliating credit counseling 
requirement. The bankruptcy system needs to be modified to take 
into account how people actually come into bankruptcy.
    I have worked since the age of 14. I have a master's degree 
and have spent my professional social work career helping 
others. To be unable to help myself and my husband financially 
and for not being able to save my son is embarrassing and 
shaming and truly adds insult to injury. It is my hope that by 
sharing our story, changes can be made to the system to help 
others in a similar situation in the future.
    Thank you.
    [The prepared statement of Ms. Burns appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you, Ms. Burns.
    Ms. Edwards.

   STATEMENT OF ELIZABETH EDWARDS, SENIOR FELLOW, CENTER FOR 
                       AMERICAN PROGRESS

    Ms. Edwards. Thank you, Chairman Whitehouse, Ranking Member 
Sessions and members of the Committee, for inviting me to be 
here. I have to say that speaking after Ms. Burns is difficult 
because she is exactly the reason that I think this bill is 
important, I am certain one of the reasons you had in mind 
drafting it.
    We are in the middle of a national debate on health care, 
which would address some of the issues that might have been 
faced by the Burns family. For the first time in 15 years, we 
are actually trying to fix a broken health care system and deal 
with the twin problems of the status quo, which are 
skyrocketing health care costs, and millions of Americans 
living without health care coverage.
    One of these problems is the problem that trapped the Burns 
family, which is the skyrocketing health care costs and, of 
course, probably a degree of under-insurance, as well.
    I know the Committee is particularly interested in the 
financial hardships that many Americans experience due to 
health care costs. People with poor or no health insurance 
coverage in a significant health problem are particularly 
likely to accrue considerable medical debt and, therefore, 
those exactly are the people who are most vulnerable to 
bankruptcy.
    Medical debt, of course, is a symptom of a larger problem 
in our health care system that we hope to solve, but the 
problem of affordability is most apparent for the nearly 47 
million Americans who lack health insurance. Roughly two-thirds 
of Americans without health insurance have incomes below 200 
percent of our Federal poverty level, as Chairman Sessions was 
saying, approximately $44,000 for a family of four.
    Most people without health insurance are workers or they 
live in families with someone who works, but they do not have 
health coverage through their employer. With the annual average 
cost of employer-sponsored health insurance exceeding $13,000 a 
year, health insurance is clearly unaffordable for families and 
many small businesses, but certainly unaffordable for families 
who then are forced to purchase it on their own--and they are 
not going to get it for $13,000 a year.
    Without robust health care reform, the cost of health care 
insurance, if it proceeds at the current pace that we have seen 
in the last decade, could exceed $30,000--compare that to the 
$44,000 that we just talked about--$30,000 at the end of the 
next decade. We have not seen and we are unlikely to see any 
wage increases in that realm.
    Sadly, people who actually have health insurance have 
become increasingly vulnerable to problems associated with 
paying for health care. A recent analysis by the Commonwealth 
Fund identified 25 million Americans, adults, these are just 
the adults, who have health insurance, but are under-insured. 
This represents an unbelievable 60 percent increase from 2003.
    Another study found that one in five Americans reported 
problems in paying medical bills in 2007. Even moderate levels 
of out-of-pocket spending relative to family income created 
medical bill problems.
    I sit in a chemotherapy chair once every few weeks and 
listen to people speaking with the person that accompanied 
them, wondering how they are going to pay for the kinds of care 
that they need in order to stay alive.
    Financial problems are a major hazard of under-insurance 
and un-insurance and of sicker adults, three-fifths reported 
they had been contacted by a collection agency. Three-fifths of 
people who are sick have been contacted by a collection agency.
    In a 2000 survey, respondents reported making difficult 
choices between using up a lifetime of savings and their 
retirement funds, as the Burns chose to do, running up credit 
card debt skipping the purchase of other necessities, adding a 
mortgage against their home in order to pay medical bills. It 
is actually one of the reasons that debts sometimes get hidden 
in other ways.
    The special circumstances for existing debt to which 
Senator Sessions was referring is often masked by the fact that 
people have tried for a long time to stave off bankruptcy and 
that medical debt is hidden in other forms, as was the 
situation with the Burns, where the lack of a safety net with 
which they provided themselves was caused by a long-term 
illness.
    So many medical debtors turn to borrowing to cover accrued 
medical expenses in order to continue treatment. In some cases, 
bankruptcy may be driven not by under-insurance, but by bad 
company practices and those who suffer wrongful rescission or 
denial not only include the debtor, they are harmed, but also 
harmed are the other creditors, because you are forced into 
bankruptcy.
    They are going to end up taking only a portion of what they 
might have gotten had the rescission or denial not occurred.
    Your proposal, Mr. Chairman, the Medical Bankruptcy 
Fairness Act would help medical debtors by providing them 
easier access to Chapter 7 discharge and enabling them to 
retain at least $250,000 in home value and assets. It would 
exempt them from burdensome credit counseling requirements.
    Honestly, what are they going to tell the Burns, ``Don't 
get sick? Don't let your son get sick?'' I mean, that is the 
credit counseling advice that would have been actually 
applicable to them. The rest of it was clearly not going to be.
    There are interim steps that you may want to consider, as 
well, to solving problems specific to medical bankruptcy. I 
will tell you that I practiced bankruptcy law for about a 
decade and so though I do not have the expertise of Professor 
Pottow, I do have some practical experience in the courtroom 
with the problems that are discussed here today.
    It is true, though, that the problem is simply an issue 
associated with our failing to address adequately and I hope 
that we will be addressing the health care insurance problems 
that exist in this country.
    Thank you so much for your time.
    [The prepared statement of Ms. Edwards appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you so much, Ms. Edwards.
    Professor Pottow.

STATEMENT OF JOHN A. E. POTTOW, PROFESSOR OF LAW, UNIVERSITY OF 
            MICHIGAN LAW SCHOOL, ANN ARBOR, MICHIGAN

    Mr. Pottow. I thank you very much. Probably practical 
experience is better in this regard than economic experience. 
So I will defer to Ms. Edwards and counsel you to take her 
advice with greater weight than mine.
    I am going to talk a little bit in what is going to be an 
anticipatorily defensive posture regarding what I am sure you 
have been considering about the so-called Harvard study on 
medical bankruptcies, and I say this as one of the co-
investigators on that research project. I did not publish 
specifically on that medical study, but I did use that data and 
I was involved in literally a year's long process on scrubbing 
the methodological protocols to ensure that the data were as 
reliable as possible. And so I feel somewhat invested in 
speaking to some of the concerns that have been made regarding 
this data.
    There are small things made back and forth. Mr. Sessions 
mentioned the point about the gambling addictions that were 
included. That was an earlier study when they decided--when the 
physicians said we should use certain things that are coded as 
addictions or disorder by the psychiatrists or--I start to 
glaze over between psychiatric and psychological.
    But the point is that there are certain medical conditions 
that are classified as addictions and compulsions. So that was 
put in the broader definition of medical bankruptcies. And the 
researchers were very specific breaking out--they said this is 
when we are using the broad definition that includes things 
like medical addictions and this is the narrow definition when 
we are just taking medical bills and this is the definition 
when we are just asking people whether they are doing 
bankruptcy or not.
    In the subsequent study, they said let's just drop the 
addiction stuff, because it does not make that much difference 
to the numbers and it is just distracting people.
    So I want to dispel the suggestion that they were trolling 
for things that could simply inflate their numbers and picking 
willy-nilly loose descriptions of what could be a medical 
bankruptcy.
    I think something that is terribly important about the 
study and any studies that purport to assess the incidence of 
medical bankruptcies and what is unique and methodologically 
commendable about the current study is that it disaggregates--
sorry, strike that. It does not try to separately classify 
medical debts as a separate species from credit card debts or 
other forms, because as we have learned through field 
research--I have actually done qualitative interviews and 
talking to attorneys and debtors and people who have gone 
through the bankruptcy system--you cannot simply say this is a 
medical debt and separate that from a credit card debt, because 
lo and behold, in this economy, people pay medical expenses 
with credit cards.
    So if you just try to abstract court records, if you take 
court records and read the names of the creditors on the 
bankruptcy petitions, you see names like Capital One. Well, you 
do not know what that is. That could be a--I mean, it is a 
credit card debt, but you do not know what the underlying cause 
of the expenditure was.
    If you see something that says Providence Health Care, you 
can figure that is a medical debt. So some studies say, ``Oh, 
that is a medical debt.''
    But unless you go in and interview the debtors and ask 
them, ``What were you spending your money on, what were you 
doing? '' you cannot get a full understanding of what is going 
on in this area.
    So the Harvard study has supplemented the court records 
data. Other researchers have looked at the court records, read 
the files, and they actually conducted questionnaires: people 
filled out questionnaires, and said, ``Why did you go bankrupt? 
What were the causes? List the causes of what you were doing.''
    And they supplemented it with a subset of that 
questionnaire group, conducting telephone interviews, where 
they spent over an hour talking on the phone to them. So it is 
a very rich, comprehensive understanding of people using the 
bankruptcy system.
    It is a random sample. Bias checks were done to make sure 
the people who answered the phone interviews were not 
disproportionate from the people answering the questionnaires. 
All sorts of bias checks were conducted on this area.
    What I find commendable, also, about the investigators in 
that area is when their 2001--I call it the 2001 study, because 
the data came out in 2001 and it was published a few years 
later.
    When the 2001 data came out, people said, ``Well, why don't 
you try a more stringent definition of medical bankruptcy?'' 
They had used $1,000 of out-of-pocket unreimbursed expenses. 
And so they said fine. So they went back and they said, ``We'll 
still do the $1,000 so we can compare apples to apples to see 
if there has been a change using the same measurement in 
2007.'' There was. The number had gone up in medical 
bankruptcies by about 40-odd percent, if not more, in a small 
period.
    And then they tried a more stringent definition and said, 
``What if it is over $5,000 in medical debts?'' and it dropped 
the numbers, but the drop in the numbers was like from 67 
percent to 62 percent. It statistically is not making that much 
of a difference based on the stringency of your definition.
    So we can sit here and debate until the cows come home 
whether it is 60 percent or whether it is 40 percent, but the 
point is we have a substantial incidence of medically related 
bankruptcies. We can find this from the survey evidence 
gathered. You can find this from the qualitative evidence when 
you go talk to attorneys who actually practice in the field and 
deal with people and deal with people like Ms. Burns and you 
get to say to them ``Why are you people going bankrupt?''
    Credit cards come up all the time and then medical 
bankruptcies is always up there. No one will say it is the only 
cause. I do not think any attorney would say it is all medical 
bankruptcies, there is nothing else in there, but the corollary 
of that is I do not think you would find any consumer 
bankruptcy attorney who would not say medical causes--medical 
bankruptcies are a big chunk of it up there.
    That is my assessment. I have been doing this for a few 
years now and I have been doing a lot of research with 
attorneys and to question the prevalence of medical 
bankruptcies seems to me almost like preemptively closed-minded 
or fundamentally immune to considering what the data present.
    I have exhausted my time. I will reserve the rest for 
questions.
    [The prepared statement of Mr. Pottow appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you, Professor.
    Ms. Mathur.

     STATEMENT OF APARNA MATHUR, RESEARCH FELLOW, AMERICAN 
        ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

    Ms. Mathur. Chairman Whitehouse, Ranking Member Sessions, 
and distinguished members, thank you for inviting me to testify 
before the Committee today. Before I begin, I would just like 
to say to Kerry and Patrick, I am really sorry about your loss. 
I cannot imagine what it felt like going through that.
    In my testimony, I will explore provisions of the Medical 
Bankruptcy Fairness Act that may help or hinder the efficient 
functioning of the bankruptcy system. The act would allow 
debtors with a certain level of medical debt to file for 
Chapter 7 bankruptcy with no means testing requirements, a high 
home exemption limit, and the ability to discharge not just 
medical debts, but also all other debts, such as high credit 
card debts.
    While I believe that the sentiments governing the act are 
understandable and I am completely sympathetic to the plight of 
families undergoing medical distress, during the course of my 
testimony, I will attempt to show that the provisions of the 
act may be open to abuse and fraud.
    This could have unintended adverse consequences for debtors 
that may worsen rather than improve the functioning of the 
bankruptcy system for exactly the people that it is intended to 
help.
    The urgency to tackle the issue of medical bankruptcies is 
being largely driven by studies claiming that more 60 percent 
of all personal bankruptcy filings are caused by medical debt.
    How valid is this supposition? The most extensive 
nationally representative data on medical debts is available 
from the Survey of Consumer Finances. A look at the latest data 
shows that medical indebtedness has not changed significantly 
over the past decade.
    The SCF includes medical debts with other debts incurred 
for goods and services, including credit card debt and, indeed, 
some of these debts have risen marginally from 5.5 percent for 
all debt in 2001 to 5.8 percent in 2007.
    Therefore, even if all goods and services debts were simply 
medical debts, the rise has been less than half a percentage 
point. The idea that medical bankruptcies are on the rise comes 
essentially from two studies done by Himmelstein, Warren and 
other coauthors. In the appendix of my longer written 
testimony, I discuss methodological problems with these 
surveys. However, I will talk about a couple of issues here.
    As John Pottow pointed out, table 2 of the 2009 study 
clearly states that only 29 percent of the respondents believed 
that the bankruptcy was actually caused by medical bills. 
However, the authors chose to add to this number the percent of 
people who lost weeks of work due to illness, the percent of 
people with more than $5,000 in medical bills, and the percent 
of people reporting any medical problems.
    This is clearly an overstatement of the problem, since the 
people do not themselves believe that this was the cause of the 
medical bankruptcy.
    Second, what the authors have established is some 
correlation of medical debts and bankruptcies, but not 
causation, and that is an inherent problem with all survey 
data. In fact, more rigorous analysis using standard regression 
techniques to establish causation finds little effect of 
medical debts on bankruptcies.
    This economics literature is discussed in my longer written 
testimony and based on this, I find that the foundations of the 
Medical Bankruptcy Fairness Act are built on somewhat shaky 
grounds, even though I acknowledge the idea in principle.
    Further, the act will reform the current bankruptcy system 
in ways that could have unintended adverse consequences. First, 
the act defines a medically distressed debtor as a debtor who 
has medical debts in excess of 10 percent of household income.
    A study of the distribution of bankruptcy filers by income 
in 2000 to 2002 showed that more than 85 percent of filers had 
annual incomes less than or equal to $48,000, with almost 60 
percent earning between $24,000 to $36,000.
    This means that if the average filer spent about $2,400 to 
$4,000 on medical care in any year, then they would qualify for 
a medical bankruptcy. The same study shows that credit card 
debts average approximately $20,000 for this group of low 
income borrowers.
    In the worst case scenario, this could create a perverse 
incentive for households since by accumulating a relatively 
lower level of medical debt, they could take advantage of the 
high exemptions and the debt discharge provisions of Chapter 7 
to get rid of the high credit card debts.
    Therefore, by allowing debtors to file as medical debtors, 
irrespective of whether medical debts are actually driving the 
household to bankruptcy, the act could impose huge costs on the 
system.
    Second, the act would remove the means testing requirement 
from medically distressed debtors. Doing away with the means 
test under the act would allow high income individuals to walk 
away from not only their medical debts, but also other debts, 
such as credit card debts.
    In the study of bankruptcy filers cited earlier, those with 
incomes higher than $70,000 had average credit card debts of 
$42,000. Allowing this group to take advantage of the debt 
discharge provisions under Chapter 7 would hit creditors 
particularly hard.
    Third, it would allow these distressed individuals to claim 
an exemption against the home of $250,000, essentially 
overriding any state exemption limits. However, high exemptions 
for wealth and income make filing for bankruptcy more 
attractive and studies show that the number of filings increase 
when exemptions increase.
    This adversely affects the market for credit. To insure 
against the probability for bankruptcy filing, lenders raise 
interest rates or ration credit, which harms debtors who repay, 
as well as those who would like to borrow, but are rejected. 
Hence, creditors alter behavior when faced with higher 
exemptions and this could have adverse consequences for 
debtors.
    Finally, the act does little for creditors in these medical 
transactions. As discussed in the previous paragraphs, there 
could be potentially serious consequences for medical service 
providers if you make it easier for debtors to file for medical 
bankruptcy involving the discharge of all medical debts.
    In fact, research has shown that between 1994 and 2000, 
unsecured creditors received nothing in about 96 percent of 
Chapter 7 bankruptcy filings and in most Chapter 13 cases, only 
mortgage creditors received anything at all.
    These higher costs of bad debts will ultimately be passed 
on to consumers in the form of higher prices for care or poor 
delivery of care.
    To conclude, I believe that any situation that causes a 
household to file for bankruptcy is unfortunate. In these tough 
economic times, individuals who lose their job for no fault of 
theirs are as badly affected as families hit by illnesses or 
injuries.
    Individuals who lose their homes because of a painful 
divorce are no worse off than people who are unable to pay 
their mortgages due to an unexpected change in credit 
conditions.
    Where do we draw the line for who we want to help and who 
we do not? The most effective solution to the problem of rising 
bankruptcies is to create the right conditions for an economic 
recovery so that families can hold onto their jobs, retain 
their earning power, stay in their homes and live within their 
means. We should help them to avoid bankruptcy rather than make 
it easier to file it.
    Thank you.
    [The prepared statement of Ms. Mathur appears as a 
submission for the record.]
    Chairman Whitehouse. Ms. Furchtgott-Roth.

   STATEMENT OF DIANA FURCHTGOTT-ROTH, SENIOR FELLOW, HUDSON 
                           INSTITUTE

    Ms. Furchtgott-Roth. Mr. Chairman, Mr. Sessions, thank you 
very much for inviting me to testify here today. With your 
permission, I would like to submit my written testimony for the 
record.
    Chairman Whitehouse. Without objection.
    Ms. Furchtgott-Roth. Thank you. I would first like to 
extend my sympathies to Kerry and to Patrick. I have six 
children myself. I cannot imagine what it would be like losing 
one of them. It must just be the worst thing in the world and I 
want to tell you that my sympathies are completely with you.
    The discussion of the merits of the Himmelstein study, I 
think, has been effectively gone over by Ms. Mathur and 
discussed already and I guess what I would like to talk about 
is what to do about the health system in general, because it 
seems like the problems of medical bankruptcy are being used in 
order to say that we need health reform.
    And it is very true that we do need health reform. It is 
easy to get auto insurance. It is easy to get home insurance. 
It is easy to get life insurance. What is really difficult is 
to get health insurance.
    The bills under consideration now in Congress--the two 
bills in the Senate, the bill in the House--would make the 
situation worse and those, in fact, would exacerbate the 
problems of bankruptcy in the United States, not just medical 
bankruptcy, but bankruptcy overall. This is because these bills 
would result in a worse economic situation, loss of jobs.
    Here is why. Everyone would pay more for health insurance 
under aspects of the plans under consideration. The premiums 
would rise. There would be a 40 percent excise tax on high 
premiums.
    The Congressional Budget Office estimates that Americans 
would pay $100 million more in premiums. Large comprehensive 
plans would be required for everybody including catastrophic 
health plans, the kind of plan where you can pay for routine 
costs out of pocket, just like you pay for changing your oil 
with a car or changing your windshield wiper blades. Auto 
insurance does not pay for that, and health insurance should 
not pay for routine care either.
    What is important is to have insurance to safeguard against 
large medical happenings, such as what happened with Kerry and 
what happened with Ms. Edwards. What is important is for large 
insurance against these--getting in a car accident, cystic 
fibrosis, getting cancer. Those catastrophic health plans would 
actually be disallowed, because you could not purchase them 
through the health exchange.
    The high cost of the health insurance plans would lower 
cash wages. Fewer workers would be employed. There would be 
more part-time workers and jobs would be outsourced. This would 
especially affect workers near the minimum wage. And if you 
lose your job, you are at a greater risk of bankruptcy.
    There would be funds cut from Medicare and Medicaid. The 
Baucus bill, for example, mandates $404 billion in cuts over 10 
years from Medicare. That would result in a lower quality of 
care. If you have a lower quality of care, you are more likely 
to be sick, and stay sick longer.
    Tax increases would discourage job creation. Under the 
House bill, the top tax rate would go up to 45 percent. That is 
on our most productive businesses. And it is not just tax rates 
at the top. At the low end, the Congressional Budget Office has 
estimated that people at 150 percent of the poverty line would 
face a tax rate of 59 percent as the different health 
affordable credits phase out.
    Employers would face a payroll tax of 8 percent if they did 
not provide the right kind of health insurance. We have a 9.8 
percent unemployment rate right now; 15 million Americans are 
uninsured. Our teenage unemployment rate is 26 percent. The 
last thing we need is an 8 percent tax on employer payrolls 
that would further discourage job creation.
    The only group that these bills would help would be foreign 
workers, because with the high cost of labor, the much higher 
cost, employers would be encouraged to open their next plant 
offshore, in Canada, Mexico or China. Those workers would be 
getting our jobs. We are the ones who need the jobs here, but 
these bills would be driving jobs offshore.
    To conclude, I would like to just say that the survival 
rates for cancer in the United States are the highest in the 
world, higher than Canada, higher than Europe, both of which 
have socialized, single-payer national health insurance 
systems.
    We need to fix our health insurance system now. We need to 
make it more like auto, home and life insurance, where anyone 
can get it, where it is not tied to the employer, but we do not 
want to disadvantage American innovation. We do not want to 
disadvantage the job creation that we have had here in the 
United States that has made it possible for people to rise up 
from low incomes to high incomes. We do not want to force more 
Americans into bankruptcy through losses of their jobs.
    With that, I will conclude. Thank you very much for giving 
me the opportunity to testify today.
    [The prepared statement of Ms. Furchtgott-Roth appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much. I cannot help but 
inquire. Did you actually read the bill that is the subject of 
today's hearing?
    Ms. Furchtgott-Roth. I did, yes.
    Chairman Whitehouse. You did.
    Ms. Furchtgott-Roth. Yes.
    Chairman Whitehouse. Because you never mentioned it once in 
your written testimony. You never mentioned it once in your 
testimony before the panel. So it is a little bit confusing to 
me that in a hearing on the Medical Bankruptcy Fairness Act, 
you seem to sort of veer across three lanes of traffic to 
attack health care reform proposals that are not the subject of 
this Committee's jurisdiction and have not a word to say about 
the bill itself, which you never mentioned.
    Ms. Furchtgott-Roth. Well, I think that we have bankruptcy 
provisions right now in the United States that are doing a good 
job of dealing with the situation.
    Chairman Whitehouse. Did they do a good job for Ms. Burns?
    Ms. Furchtgott-Roth. Well, Ms. Burns was in a very, very 
unfortunate situation, whereby both----
    Chairman Whitehouse. Bankruptcy tends to attract people 
with unfortunate situations, does it not? People with fortunate 
situations are very rarely in bankruptcy court, at least that 
is my understanding.
    Ms. Furchtgott-Roth. It does. But what we need to do is 
also look at the unintended consequence of these different 
kinds of legislation and by making it much easier to forgive 
bankruptcy, what you are doing is encouraging more people to 
file for bankruptcy.
    Chairman Whitehouse. Well, I guess I will just leave it 
right there. I think I cannot make the--I cannot say anything 
better than that.
    Ms. Mathur, I was interested, you indicated that you are 
completely sympathetic to the plight of families--I think that 
was the quote from your testimony--but when you discussed this 
issue in your written testimony, you talk about medical filers 
and your concern is that a medical filer, somebody like Ms. 
Burns, not that she has to sit down and go through credit 
counseling--I think you will agree with me that putting her 
through credit counseling is a complete waste of time and a 
totally unnecessary humiliation, correct?
    Ms. Mathur. Absolutely.
    Chairman Whitehouse. Absolutely.
    Ms. Mathur. And that is why I did not talk about it in my 
statement.
    Chairman Whitehouse. But your concern is that she would 
have an easier time walking away from their other dischargeable 
debts and that this would hit creditors particularly hard, a 
point you emphasized in your written testimony.
    It is hard for me not to conclude from your testimony--you 
then go on to say that a medical debtor--the protections for 
the medical debtor would clearly lead to strategic behavior on 
the part of opportunistic debtors. Medically distressed debtors 
would get rid of their credit card debts.
    It does not sound to me that your testimony is balanced 
between the interests of families like Ms. Burns' and those of 
the credit card industry. Wherever you have a chance to express 
actual sympathy in your testimony, the only place you express 
actual sympathy is to the credit card industry and to 
creditors, but in the context of creditors or people who have 
credit card debts of $42,000, which would, again, seem to be 
sympathy for the credit card industry rather than families.
    And your closing remarks, suggesting that the most 
effective solution to Ms. Burns' problem is to create the right 
conditions for an economic recovery so that families can hold 
onto their jobs, retain their earning power, stay in their home 
and live within their means, seems to be almost nonsensically 
not correlated to the purpose of this hearing.
    She and her husband had jobs. This occurred 4 years ago 
during a period of economic bubble, when the economy was going, 
frankly, as we found out later, unjustifiably strongly.
    The reason they lost their earning power was not because of 
anything in the economy. It was because their son was diagnosed 
with cystic fibrosis. They cannot stay in their home because of 
that and they have done everything they can to live within 
their means.
    So I really have some skepticism about whether your 
testimony actually reflects the sympathy that you claimed once 
you had heard her testimony. It seems to me it is highly one-
sided.
    Ms. Mathur. I think the purpose of the testimony--and as I 
stated in my opening remarks--was that this particular act 
could be open to abuse and fraud. Whenever you introduce----
    Chairman Whitehouse. Let me ask you, at what point would 
you say that the tipping--let us say that there are, to use 
your number, let us say that 29 percent of bankruptcies are 
caused by medical bills. That is 30 percent of people in the 
bankruptcy court who were there not because they were 
improvident spenders, not because they had bad control over 
their family budgets, but because a family medical emergency 
hit them, something nobody can plan for.
    So there you have got 30 percent of people in the 
bankruptcy court who are there for this reason, being subject 
to the means test, having what you agree is a preposterous 
credit counseling regime being imposed on them.
    What if 5 percent of them took advantage of this to get rid 
of some additional credit card debt and the other 95 percent 
simply were relieved of that burden, at what point does the 
prospect of fraud, in your view, tip in favor of leaving people 
like Ms. Burns having to go through credit counseling after she 
lost her son?
    Ms. Mathur. I would not recommend credit counseling for 
somebody like Ms. Burns. I completely agree with you. I never 
in my opening remarks made any comment about whether she should 
go through credit counseling because she had medical debts.
    Chairman Whitehouse. Well, you certainly did not say 
anything----
    Ms. Mathur. The whole point of my testimony is that the act 
that you are recommending, the act that you are proposing could 
be used in unintended ways and it is very important that we 
realize exactly what we are getting into when we sort of adopt 
it wholeheartedly.
    It is not for people like Ms. Burns who are clearly there 
because of genuine medical problems.
    Chairman Whitehouse. Did you support the original act?
    Ms. Mathur. But there is a big literature out there which 
does talk about opportunistic debtors who can----
    Chairman Whitehouse. Did you support the original 
Bankruptcy Reform Act?
    Ms. Mathur. Yes. I think that there are good points to it 
and I think that----
    Chairman Whitehouse. Were you concerned then about 
unforseen consequences for people like Ms. Burns who have 
credit counseling?
    Ms. Mathur. I think there will always be people like Ms. 
Burns who are genuine and who will face, even under--I mean, 
you cannot get rid of the problem that people will face 
illnesses and injuries and they will go through problems and 
you need to have a system to address their needs.
    The problem is that if you introduce an act, you need to 
understand what the consequences could be for people who may 
take advantage of these acts, as was clearly the case before 
the Bankruptcy Reform Act of 2005, and you had people, when----
    Chairman Whitehouse. I understand your point. My time is 
running out. So I am just going to conclude by saying it very 
much seems to me that the concern over unintended consequences 
that you appear to have is concern over consequences to credit 
card companies and not concern over unintended consequences to 
people and families like Ms. Burns'.
    Ms. Mathur. I think the consequences for the credit card 
system would have unintended consequences for debtors, which 
was also the tone that I took throughout my testimony.
    If you affect the market for credit, it is not just going 
to affect the creditors. It is going to affect debtors in the 
sense of their ability to get loans and the ways in which they 
can get loans and you may make the system worse for them than 
you think you are making it right now.
    Chairman Whitehouse. My time has expired. The Ranking 
Member?
    Senator Sessions. Well, Ms. Burns, under your 
circumstances, perhaps it was pretty clear, after you went 
online and did the computer system on credit counseling, that 
you qualified for bankruptcy and you would not have to--but the 
reason that was passed is because a lot of people are on the 
margin between whether they should file bankruptcy or not.
    Lawyers that they go to do not get their fee unless they 
file bankruptcy and many of them just are cold-blooded number-
oriented lawyers and if it benefits them in the short term 
financially, they will recommend that that is what they do.
    So it was an idea that we would provide an opportunity for 
a reasonable fee, and that can be waived, too, and many people 
do get that fee waived, to go through a system to get a little 
outside perspective on whether there is a possibility that the 
individual could work their way through their debts without 
going into bankruptcy, and that was the motivation for it, not 
to--and I hope that--I am sorry that you felt that it was 
demeaning to have to answer those questions, I really am, but I 
think it overall is a good thing.
    I would like to repeat--an individual, let us say, did act 
irresponsibly and had no insurance, and you had insurance, and 
they had been going along fine until all of a sudden they had a 
serious injury or illness and had very large debts, let us say, 
several hundred thousands of dollars or may be more.
    They are able, are they not, Professor Pottow, to file 
bankruptcy if their income is below the median income in 
America and wipe out all of those debts and not pay their 
doctors or their hospitals?
    Mr. Pottow. Oh, sure, they can file for Chapter 7 with 
eligibility if they are below the median income automatically.
    Senator Sessions. And do you agree that about 80 percent of 
the people are median income or below that file bankruptcy?
    Mr. Pottow. Yes. The majority of people--I would say the 
large majority of people who currently file in the bankruptcy 
system are below the median income.
    Senator Sessions. If you were pretty cold-blooded about it, 
you might say, ``I do not think I will take out insurance. I 
believe I am pretty healthy and I might just beat this 
system,'' I hear Ms. Mathur and Ms. Furchtgott-Roth indicate, 
and, economically, they would say, ``Well, if I do get in 
financial trouble for illnesses, I can always bankrupt against 
it.''
    I am not sure how many people think that way, but economic 
forces tend to have effects in the long run. So I just would 
say that what the current law is is that if you have any debts 
and they are above median income, that an individual can--and 
they make below median income, they can all be wiped out and 
they do not have to pay their hospital a dime.
    If they make above median income, a judge decides how much 
they can pay and orders them, over a period of three to 5 
years, to make some payments back toward those debts.
    Do you think that is unjustifiably harsh?
    Mr. Pottow. Well, you raise the proposition of the economic 
effects of incentives and this is what--in terms of what Dr. 
Mathur was saying, she was speculating that there is a 
possiblity that there could be opportunistic behavior.
    But with any rule, with any economic incentive crafted by 
anything, when there is an insurance or protective function, 
there always is a moral hazard concern.
    If I have health insurance, there is the risk that I could 
say, ``Hey, let's see if I can jump out the window and if I 
break my arms, that is OK, someone else will pay for it.'' You 
have to then step back, once you have speculated on the 
economic possibilities, about whether that will actually affect 
people's everyday lives.
    So the risks of someone like Ms. Burns then sort of 
thinking, ``OK, now, maybe I can ring up some credit card 
bills,'' after they have gone through a traumatic medical loss 
like that, strikes me as, while I suppose economically 
conjectureable, empirically and pragmatically unlikely, not 
enough that it would generate great concern.
    Senator Sessions. But it does sound to me that Ms. Burns 
meets the very reason we have bankruptcy procedures and I 
certainly do not denigrate the difficult situation she went 
through. But there are people who do take advantage of it, 
there is no doubt.
    Professor David Dranove, who is a Walter McNerney 
distinguished professor of health industry management and 
director of the Center for Health Industry Market Economics at 
Northwestern University's Kellogg School of Management recently 
wrote the following about the Warren study on a blog post.
    Quote, ``I realize that the concept of medical bankruptcies 
is captivating and my research confirms that the uninsured case 
face severe financial hardship when illness strikes, but the 
Harvard studies are so poorly designed that it is impossible to 
tell from their work just how serious the problem is and the 
conclusion that private health insurance does not protect 
against bankruptcy appears to be totally misguided. Even worse, 
the Harvard studies are leading to bad policy.'' Other than 
outright fraud, I cannot think of a worse thing to say about 
academic research. As I've said before, it is vitally important 
that academics get the numbers right.
    Now, he supports a national health care system. He is not 
opposing a national health care system. But, I guess, Ms. 
Mathur and Professor Pottow, would you all comment on that 
statement?
    Ms. Mathur. I think as an economist, I think I would agree 
that the design of the study is--it is very poorly done. The 
first issue with the study is what is called sample selection. 
So they only looked at people who had already filed for 
bankruptcy and that is the only truth and then you start asking 
people, ``Well, did you have any medical reasons for filing for 
bankruptcy,'' and, obviously, you come up with a really high 
number.
    But if you start--with most economic studies and most good 
published literature in economics, the way you start off with a 
sample is to look at a group of people with medical debts, 
without medical debts, people who have filed for bankruptcy, 
people who have not filed for bankruptcy, and look at the 
probabilty that the fact that you have medical debts will lead 
you--what is the likelihood that your medical debts are likely 
to lead you to a bankruptcy filing.
    And there is nothing in the economics literature to suggest 
the huge effect that the Himmelstein paper finds. That is 
purely a sample--a problem with the way the sample is designed.
    The second problem is, again, the methodology. The way you 
would do that kind of analysis is to also account for the 10 
other things that could have led to the bankruptcy filing. Did 
the person lose his job? Is he going through a divorce 
proceeding? Are there other economic conditions in the state 
where he stays in, in the region that he lives in, that could 
have led to, say, the bankruptcy filing or that could have led 
to a pile-up of medical debts that could have caused the 
filing.
    And there is nothing in the study that lets you--that 
controls for any of those other factors or that even tries to 
deal with the sample issue and that is the only reason. It is 
only survey data which is leading you to that high number.
    And as several people have pointed out, other surveys find 
vastly different results and much lower numbers. So you could 
look at another random sample and say, well, how many people, 
for instance, in the PSID data, the panel study of income 
dynamics data, how many people in that data set said that they 
filed for bankruptcy due to medical reasons, that is only 16 
percent.
    Senator Sessions. We are running over and I appreciate 
that. Professor Pottow, would you like to respond?
    Mr. Pottow. Yes. Survey data is a perfectly legitimate 
academic way to collect information on the problem. We would 
have to throw out the whole field of sociology if we were to 
not use it anymore and that would be, I think, a loss to the 
academy.
    The methodology is not suffering from a sample bias. If you 
want to ask people who are bankrupt why they went bankrupt, 
then it is not a sample selection bias to restrict that to 
people who are in bankruptcy. It is, in fact, the only 
appropriate audience to ask.
    I do agree that from sort of a first position, academically 
perfect way to study something, if you could perfectly 
categorize debts, get the credit card debt that is really 
medical debt and get the collection debts and get the home 
equity lines that are really medical debts, if you could do a 
controlled thing by having people who have a lot of medical 
debts to see if there is a causal inference, then a regression 
might be helpful, but I do not think it undermines the validity 
of the data that when you collect survey evidence from people, 
you ask them to ascribe reasons for their bankruptcy--that is 
robust. The Consumer Bankruptcy Project, this data that we 
have, is the largest national sample that does this sort of 
survey data.
    The only other survey data that is out there that even 
comes close to this is the PSID and even that has suffered from 
methodological infirmities that have been well documented, 
including the incorrect response rate for people predicting 
their bankruptcy incidence and that I think led them to not 
even use the bankruptcy questions anymore.
    So regarding this reference to the large corpus of economic 
literature: there are a bunch of economic studies out there, 
but they do not have the level of detail and sophistication and 
nuance that this Harvard study has.
    They do not aggregate. They cannot properly predict the 
medical debt incidence because they are using too crude of a 
metric and they say either you are a credit card debt or you 
are a medical debt and they miss the boat.
    Chairman Whitehouse. Well, I appreciate this, but I think 
it is time to get on to another questioner.
    Senator Sessions. Mr. Chairman, I do not have any doubt 
that a number of people, a significant number file bankruptcy 
because they have medical debts. I am just reluctant to 
conclude the current system that allows median income and below 
to file Chapter 7, as they always have, is unfair and those 
above median income would have to pay back some of their debts 
over a period of years, if they are able. I do not think that 
is unfair, basically.
    Chairman Whitehouse. Senator Franken.
    Senator Franken. Thank you, Mr. Chairman, for calling this 
hearing on your bill and I want to thank the witnesses who 
spoke to it.
    Professor Pottow, in your testimony before the House in 
July, you mentioned that the 2005 bankruptcy reform was 
particularly bad for people with medical debt. Tell me why you 
think people with medical debt deserve special protection under 
bankruptcy law.
    Mr. Pottow. Well, I think that there was--I do not want to 
speak for people who passed the legislation, but there was a 
suggestion that there was a rampant incidence of abusive and 
strategic behavior that required amendments to the bankruptcy 
code to make sure that people who could pay back their debts--
and the way it was implemented was through an income 
measurement--should be forced to pay them back.
    And so it was called the anti-abuse amendments, with the 
idea that you were going after abusive people, system gamers, 
deadbeats, and it seems to me that the antithesis of that is 
someone who has filed for a medical reason through no fault of 
their own, through no strategic conduct. They are, per se, not 
an abuser.
    So that is why I said that there was, I believe, a 
different moral justification for treating them differently. 
But I am not an expert in morality. I am just a bankruptcy 
person.
    Senator Franken. Ms. Edwards, in your written testimony, 
you note that according to one survey, medical expenses helped 
cause 70 percent of home foreclosures, and I think a lot of 
people do not realize that.
    Before the bubble burst, you could buy a house and if you 
got sick, you could sell your house. Now you cannot.
    What significance do you think that has, people essentially 
being stuck in their homes, has on the situation that people 
who are ill find themselves who have a home?
    Ms. Edwards. I will put my bankruptcy lawyer hat on for a 
second. If I had someone who came to me with these kinds of 
problems, that they had these high debts and they were not able 
to--high medical debts, they were not able to--did not have the 
fluidity in their economic situation to sell their house, their 
largest asset, they have already dipped into their savings or 
their retirement funds, as the Burns had done, but they were 
sort of locked into the situation because the value of their 
house had decreased perhaps below the mortgage level and so 
that asset on which they might have counted was no longer 
available.
    So your advice as a lawyer would be that your bankruptcy 
was going to--you would actually be advising people more to go 
into bankruptcy because of the present economic situation.
    I have to say something about the anti-abuse section and 
that is that in the 2005 bill earlier is that it was not 
considered or was rejected with some limitation on the 
homestead exemption. It is very frugal. In Alabama, it actually 
is malpractice practically not to advise someone to move to 
Texas or Florida with their incredibly generous homestead 
exemptions.
    So if you wanted to stop abuse, this little narrow section 
that Dr. Mathur talks about is just not where you want to put 
your attention. You might want to put your attention on a much 
larger problem with a much larger asset than somebody, even if 
you are talking about $42,000 in credit card debt, which, most 
of the time, you are not talking about that.
    The notion, I think, that we have people who are out there 
trying to defraud, we have people who are doing just what you 
were talking about, they are in this terrible situation, they 
are trying to figure out a way out. They do not have access to 
their home as an asset and they are not planning ahead.
    As a matter of fact, most people are planning not to go 
into bankruptcy. They are finding ways not to go into 
bankruptcy instead of planning what they are going to do so 
that they can somehow game the system in bankruptcy.
    People do not want to do it, because, in part, as Ms. Burns 
described it, it is an extremely humiliating, shameful 
condition. In The Two Income Trap, Professor Warren discussed 
the fact that 50 percent of American families teeter on this 
razor blade with the idea that they might have to file 
bankruptcy.
    Well, if there is a divorce next door, you know if somebody 
moves out, there are suitcases on the lawn. If there is a 
bankruptcy next door, you do not know it. So this is something 
that is happening and lots of families who just simply do not 
know it.
    If I could address one thing that Dr. Mathur said, and I 
apologize for taking your time to do this, she said that 
medical indebtedness has not increased over the past decade or 
so.
    Without arguing with that position, which I think is 
arguable given what has happened to medical costs, it makes no 
sense for her to say then that we have to--that she knows 
bankruptcies are up, that creditors, in fact, are being put 
into a situation where they are only going to get pennies back 
on their dollar.
    So we already have, without medical bankruptcies going up, 
we already have this upward pressure, supposedly, on interest 
rates and on restrictions of capital.
    If we only were talking about 29 percent of people, which 
is the number, I think--is that the number that you are willing 
to accept? My recollection from the House testimony is your 
number was not significantly different from 29 percent.
    If we are only talking about 29 percent of the people who 
have medical bankruptcies and that the system is unfair to 
them, why in the world would you not fix it?
    Senator Franken. I have to agree with that. Dr. Furchtgott-
Roth, I think we disagree on whether health care reform, the 
health care reform that we are talking about now and Congress 
should pass, and you said that kind of the way we are going 
will increase bankruptcies.
    I want to ask you how many bankruptcies because of medical 
crises were there last year in Switzerland?
    Ms. Furchtgott-Roth. I do not have that number in front of 
me, but I could find out and get back to you.
    Senator Franken. I can tell you how many it was. It is 
zero. Do you know how many medical bankruptcies there were last 
year in France?
    Ms. Furchtgott-Roth. I do not have that number, but I can 
get back to you, if you like.
    Senator Franken. The number is zero. Do you know how many 
were in Germany?
    Ms. Furchtgott-Roth. From the trend of your questions, I am 
assuming the answer is zero, but I do not know the precise 
amount and I would have to get back to you.
    Senator Franken. You are very good and very fast. The point 
is that I think we need to go in that direction, not in the 
opposite direction. Thank you.
    Ms. Furchtgott-Roth. Do you know the cancer survival rates 
in those countries?
    Senator Franken. You know, you have picked on one--and if 
you look at that study, did you know that we pick, easily, much 
more easily survivable cancer rates? So if you want to start 
getting into digging deep into studies, that study is not 
legitimate. I have heard that before.
    That is because we find easily survivable cancers that 
count as ones that we survive. So you can cherry-pick stuff to 
find one little place where somebody says our system works 
better than the French or the Germans, but we are talking about 
bankruptcy here today.
    The fact of the matter is you are saying that if we go more 
to a French system or a Swiss system, that we will have 
increased bankruptcies, but the fact is they do not have 
bankruptcies and we do for medical care.
    Thank you.
    Ms. Furchtgott-Roth. The fact is also that the Himmelstein 
study did not----
    Chairman Whitehouse. Senator Feingold.
    Ms. Furchtgott-Roth.--prove that there is a problem.
    Chairman Whitehouse. Thank you very much.
    Ms. Furchtgott-Roth. When Dr. Pottow was saying about how 
surveys are a very good way to----
    Chairman Whitehouse. Senator Feingold is recognized. We 
have time for each Senator to ask their questions and answers.
    Senator Feingold. Thank you, Mr. Chairman, for holding this 
hearing to call attention to this very important topic. I 
support your bill, S. 1624, and ask that you add me as a 
cosponsor, please.
    I agree with you that the issue of medical bankruptcy 
should be part of the upcoming health care debate in the 
Senate. I opposed the bankruptcy reform bill that became law in 
2005 for many reasons, but the overriding reason was that I 
believed it was a blunt instrument designed and pushed by 
powerful interests in the banking industry that would harm the 
most vulnerable Americans while achieving very little of the 
abuse prevention that was supposedly its purpose.
    So the situation we now have with medical bankruptcies is a 
prime example of the shortcomings of the law. So I commend you 
for focusing the Senate's attention on this.
    The rising cost of health care is, of course, well known to 
everyone here and everyone in the country, but the effect of 
those cost increases on bankruptcy filings is not as well 
known.
    One recent study estimates that medical debt is responsible 
for over 60 percent of bankruptcy filings in this country. That 
is really an extraordinary number. While I recognize that there 
is some debate over that number, virtually everyone agrees that 
the number of bankruptcies attributable to medical problems is 
growing very rapidly.
    Now, this problem is hitting the elderly especially hard 
and, remember, these are the people who almost always have 
insurance coverage because of Medicare. Yet, the percentage of 
bankruptcy filings by people over the age of 65 is over three 
times what it was in 1991 and medical debt is almost certainly 
a big part of the reason for that.
    So we have an increasing number of Americans filing for 
bankruptcy because of medical debt, yet they face a bankruptcy 
system that was designed to put roadblocks in their way because 
Congress said it wanted to weed out deadbeats and spendthrifts.
    It is a minor example, but let us take the requirement that 
has already been discussed of credit counseling. What exactly 
is a credit counselor going to tell a family that has lost 
everything as they struggled to pay the medical expenses for a 
fatally ill child, like one of our witnesses today, or faces 
huge medical bills and nearly complete loss of income because 
of the catastrophic illness of the primary breadwinner? What 
purpose is served by the burdensome paperwork requirements of 
the means test in cases like that?
    It is time for Congress to recognize that the 2005 
bankruptcy reform bill is causing unnecessary and unfair 
hardship to people who no one thinks are abusing the system.
    Senator Whitehouse's bill contains some common sense and 
quite moderate measures to try to reduce the burden for people 
whose financial problems are caused by medical problems. It is 
an important piece of the very complicated and very important 
puzzle that the Senate is going to be addressing in the next 
few months.
    I want to ask Professor Pottow to elaborate on his written 
testimony concerning the role that medical expenses are playing 
in the increasing number of bankruptcy filings by the elderly.
    To me, this is a chilling statistic, because Medicare is 
supposed to alleviate the financial hardship of medical 
problems for the elderly. What is happening here?
    I would also like to hear from my friend, Elizabeth 
Edwards, on this point, as well.
    Mr. Pottow. Thank you. Yes. This is a very disturbing trend 
and I am glad you are asking for the numbers and the data, 
because even these credit counseling requirements, they cost, 
on average, about 50 bucks. And going through twice, I am sure 
you, Ms. Burns, had to pay for them. So even if you pass the 
means test, you still have to pay for this.
    In terms of the elderly, the data that I had is on the 
survey evidence specifically saying, ``Why did you file for 
bankruptcy? Was it a medical reason, medical problem'' 39.1 
percent of the people who are 65 or older for the primary or 
secondary petitioner or 6.8 percent of another family member 
said yes. If you specifically said, ``It was medical bills were 
the reason I filed,'' you can add another 32.5 percent.
    Anyone answering either of those reasons was 49 percent. So 
half of the people are actually specifically saying on a 
questionnaire it was because of an illness or because of a 
medical bill and these are people over 65 who should be covered 
predominantly by the Medicare program.
    So that is why I want to urge this Committee, let us not 
lose the forest for the trees. We can debate 60 percent, 40 
percent. We are talking about big numbers and at a certain 
point, your job is to move things forward, I believe.
    Four percent of them had to mortgage their home, of the 
over 65, to finance these medical bills; loss of 2 weeks of 
wages was 11 percent, that is less interesting because a lot of 
them are retired already of the over 65 group.
    Then for a definition that sort of gets at what you guys 
are talking about with this bill here: incurred more than 
$5,000 or 10 percent of their annual income in out-of-pocket 
expenses was 30 percent of the over 65 group.
    I will let Ms. Edwards talk now.
    Ms. Edwards. The elderly, 50 percent or more of people who 
come into Medicare come in with two or more chronic conditions. 
So you are talking about a population that is generally sick 
and it is not just they are sick today, they did not jump out 
the window and break their arms.
    They have chronic conditions that are going to continue to 
cost them money and it is one of the reasons why it is really 
important for them to have access, non-punitive access to 
bankruptcy.
    I have to say this is also true in terms of chronic 
conditions. A large number of these people who are coming into 
bankruptcy court with these extraordinary medical expenses, the 
extraordinary medical expenses are unlikely to be from--or they 
are less likely to be from a single catastrophic incident, an 
accident or something, as they are from the kind of condition 
of cystic fibrosis or cancer that have long-term costs over 
time, which is why the means test turns out not to be 
particularly adequate, because what happens to these people is 
they get into the system, they have got a repayment schedule, 
the condition still exists.
    The medical condition still exists. They are still going 
to--the day after they file bankruptcy, they are still going to 
have medical costs that they are incurring.
    So if they could start with a cleaner slate, again, it 
would make an enormous difference in the lives of these people 
and the ability they have to pay attention to what it is they 
should be paying attention to--the health of their family or 
the health of themselves.
    I wanted to, if you do not mind, answer a question. Cancer, 
in the test with respect to cancer, cancer is not identified 
adequately in our population, because it is not adequately 
identified in the uninsured population.
    When you do not have an uninsured population, when you have 
universal care, more cancers are going to be identified and, 
therefore, the cancers in the least well population, the 
population with the poorest health, which are the people who 
are least likely to be insured, are going to be treated in 
other countries and not here.
    Senator Feingold. Thank you, Ms. Edwards.
    Professor Pottow, can you just clarify another matter? 
People who make less than the median income are not subject to 
the means test, but they still have to comply with the test's 
burdensome paperwork requirements. Is that not one of the 
things that this bill would change?
    Mr. Pottow. Yes, indeed. And another consequence, too, is 
that everyone, after this bill in 2005, has to pay much more 
for the attorneys' fees. This paperwork has caused attorneys' 
fees to go up by about 50 percent, and that is not just my 
data. That is confirmed by the General Accounting Office.
    So the big winners are the people who process the system in 
terms of the fees. It has made everything more expensive. Even, 
I must say, pursuant to Deficit Reduction Acts, the filing fees 
for bankruptcy have gone up, not only the attorneys' fees.
    So every step of the way, it is cutting down these people 
with incremental costs, even if they ultimately end up 
succeeding and passing the means test, they still get dinged by 
these costs along the way.
    Senator Feingold. Thank you, Mr. Chairman.
    Chairman Whitehouse. Thank you very much. Courtesy among 
Senators is very important around here, and so I had to cut off 
Ms. Furchtgott-Roth because it had become Senator Feingold's 
time and she was still addressing Senator Franken.
    But now that it is back to my time, I would like to invite 
her to finish whatever it was that she wanted to say, and then 
I will have a question for Ms. Burns.
    Ms. Furchtgott-Roth. Thank you very much, Mr. Chairman. I 
just wanted to say that even though I agree with Mr. Pottow 
that survey data are a standard way of finding results and 
economics, this particular survey, in the Himmelstein, that he 
used is not standard. He had 5,251, a sample of that size, but 
then he whittled it down to 639. So there were all these 
observations he did not use and it was not necessarily random 
with that small amount.
    Second, the reasons for medical bankruptcy were not 
distinguished. If you had $1,000 of uncovered medical spending 
in 2 years, you were counted as being medically bankrupt. That 
is $500 in 1 year. Many families have $500 with dental 
appointments, copayments, that kind of thing.
    Also, he said that a loss of 2 weeks income from illness 
automatically put you into a medical bankruptcy category, even 
if you did not have medical expenses at all.
    So say you were a salesman and you had 2 weeks off because 
of the flu. You were still counted as being medically bankrupt. 
That is not standard survey economics or sociology technique.
    Thank you.
    Chairman Whitehouse. Thank you. Just one final question. 
Should Ms. Burns have had to undergo credit counseling in her 
circumstance?
    Ms. Furchtgott-Roth. I think that all the decisions that 
Ms. Burns made were absolutely right in her circumstances.
    Chairman Whitehouse. And should she have had to undergo 
credit counseling in her circumstances?
    Ms. Furchtgott-Roth. I do not know the answer to that 
question.
    Chairman Whitehouse. Under what circumstances could the 
answer possibly be yes?
    Ms. Furchtgott-Roth. I think that making policy by anecdote 
of one person is not a good idea.
    Chairman Whitehouse. I did not ask you policy. I asked you 
should Ms. Burns have been subjected to credit counseling.
    Ms. Furchtgott. And I said that whatever happened to Ms. 
Burns was absolutely correct and that I do not comment on what 
she should have done and what she should not have done. She had 
extremely unfortunate circumstances and I think that she and 
her husband have borne this in an extraordinary manner.
    I myself would not have been able to get up and testify the 
way she has without managing to hold myself together the way 
she has, and I have great admiration for her and her husband 
and all the rest of her family, also.
    Chairman Whitehouse. Ms. Burns, could you tell us a little 
bit more about the actual process as it worked out for you and 
for Mr. Burns as you came to file?
    You mentioned the credit counseling, you mentioned the 
document preparation. Could you flesh that out a little bit and 
tell us how long it took, what it was like?
    Ms. Burns. We are still actually in the process. We first 
met with lawyers in April, about a month after our son passed 
away, which was incredibly difficult. We did not have all of 
our paperwork. We were sort of between homes. We were living in 
D.C., then living with friends. So it took some time for us to 
gather all that paperwork, because it is quite extensive. Lots 
of documentation is needed.
    So as that process went on, we learned that it would cost 
$1,300 in a filing fee. We had already paid $250 as a retainer, 
which helped stop the calls that we were getting from our 
creditors for a short time. They are starting again.
    In terms of once we found out that it was going to cost 
$1,300, we did not have that money. We came back with literally 
nothing. We lost our son and we literally had no assets.
    So it took some time for us to find a way to get some money 
to pay the actual filing fee. So that happened in August. 
Again, we needed to clarify some of the documentation, some of 
that sort of thing.
    In September, we sat down to take the credit counseling 
course and it was sort of a slap in the face, honestly, and we 
have not yet finished that course. We logged off and needed to 
walk away from it for a little while.
    So our plan is to do that. We have not done it yet, though, 
because it is really incredibly painful to go back in and we 
had to re-ascertain all of the numbers that we had given to our 
lawyers and sort of re-dredge up all of that information in 
order to--it was not just the questions about how could we have 
not gone bankrupt. It was, again, having to give every single 
bit of information about income, debt, where our debt is coming 
from, what the amounts are, and having to go step-by-step 
through that process again.
    Chairman Whitehouse. Even though you had already done it 
with your lawyer, you had to do it again for this program.
    Ms. Burns. We had to do it again for the program and there 
is no doubt, in our minds, that we are filing bankruptcy. There 
is no doubt, there is no question, in our lawyer's mind, that 
we need to file bankruptcy.
    It is simply you need to do this, because, well, that is 
the rule and you need to do it.
    Chairman Whitehouse. But you have no choice. You still have 
to----
    Ms. Burns. We do not have a choice.
    Chairman Whitehouse. Is there a person that you are talking 
to or is it just a computer program?
    Ms. Burns. It is a computer program and they actually 
called--they did call us, because we logged in, started the 
process, and we stopped.
    So a few weeks after that, we did get a call saying, ``Hey, 
were you having a problem with the system,'' with the computer 
part of it, which was not the problem. And we also, after we 
file, need to take anther course.
    Chairman Whitehouse. There is nobody you could go to and 
say, ``Listen, you do not understand.''
    Ms. Burns. No.
    Chairman Whitehouse. ``My son died and here are the 
circumstances that we are in.''
    Ms. Burns. No.
    Chairman Whitehouse. ``Putting me through this is 
preposterous. Would you please stop it?'' You just have to go 
and keep going to that computer program. And it is just a 
computer program. It is you versus the computer. There is not 
even a person on the other side.
    Ms. Burns. Right. And we will need to do it again after we 
actually go through the filing process and meet with the judge. 
It is a requirement after you file, as well, so that you can, I 
guess, get an idea of how to not do the same thing again in the 
future, which is an incredibly hurtful idea that I am not 
looking forward to.
    Chairman Whitehouse. Well, I can appreciate that. And on 
top of being subjected to, did you say, 20 or 30 collections 
calls a day, including right into the hospital where you were 
tending your son----
    Ms. Burns. Yes. It was 30 calls a day to each of our cell 
phones. We each had a cell phone and that was our lifeline to 
our family back home, particularly when we were in D.C. And we 
had to shut our phones off. I mean, it was 60 calls a day.
    Chairman Whitehouse. I could see that, as difficult as it 
would be, the first four or five or even 10 times having to 
explain what your circumstance is and what your family 
circumstance is and where you are and your son are right there 
and he is in an intensive care unit.
    But 20 or 30 times, it must just get to be extraordinarily 
burdensome to have to have that conversation over and over and 
over and over and over and over again.
    Ms. Burns. Absolutely. And we did make a good faith effort, 
when we knew that our money was running out, to contact all of 
our creditors and we really did not get anywhere with them and 
then the calls started and did not stop and still continue.
    Chairman Whitehouse. And because of the delay in getting 
through the bankruptcy process, which is caused by the delay in 
having to go through this completely nonsensical credit 
counseling, you also continue to have to answer those questions 
about your debt situation and deal with collection calls.
    Ms. Burns. Yes. Yes, we do.
    Chairman Whitehouse. I am sorry.
    Ms. Burns. Thank you.
    Chairman Whitehouse. The Ranking Member?
    Senator Sessions. Well, sometimes--let me just say this 
about credit counseling. You can go to a local credit counselor 
and you can also get approved to not have to pay that and we do 
know that quite a number of people who are in bankruptcy have 
difficulties managing their money and they did not know some 
things that got them into trouble.
    Had they been able to learn more about how to manage money, 
they could avoid that in the future, and that is why, when the 
government starts to regulate anything, take over health care, 
you have rules and that was one of the rules we agreed to on 
the bill, that a person would inquire before they file, because 
they can find that they are able to work out a bankruptcy and 
there are other ways to avoid it, and, hopefully, you can----
    Chairman Whitehouse. Can I interrupt you for a question?
    Senator Sessions. Yes, you can.
    Chairman Whitehouse. In what way could there possibly be 
more intrusive government regulation than to have the 
government require that Ms. Burns, who has just lost her son, 
has to deal with a computer for weeks at a time and do all this 
stuff, with absolutely nobody to talk to and let her out of the 
situation?
    Senator Sessions. It is not weeks at a time. It is you file 
the matter and if you have got the information, you provide it 
to your lawyer. I am under the impression it can be done within 
an hour.
    Chairman Whitehouse. Did it take you an hour?
    Ms. Burns. No, it did not and, unfortunately, we have been 
between three houses, three different living arrangements since 
we returned from Washington when we lost our son, which 
included having to clean out our house, having to put our 
things in storage because our house was going to be foreclosed 
on, and it was foreclosed on in August, we lost it, and trying 
to obtain other housing.
    There were other things that were a little bit more 
relevant to our daily living, which included finding somewhere 
to live, having enough money to buy food and gas, trying to 
find employment, and, unfortunately, this particular thing just 
added an undue burden. And when I cannot avoid having to find 
money for good and gas, this other thing, I need to put that 
aside.
    Senator Sessions. Well, there would be a potential option 
for you to seek to be able to go through that without a pay 
fee.
    What about the $250? That is the initial retainer you paid 
the attorney. What do you expect the attorney's fees to be when 
the process is complete?
    Ms. Burns. I had no idea what the attorney's fees would be, 
I truly did not.
    Senator Sessions. What did they tell you in addition to the 
$250?
    Ms. Burns. $1,300.
    Senator Sessions. What about the attorney's fee?
    Ms. Burns. I know the filing fee is $1,300. I am sure that 
there are other expenses that are going to be included.
    Senator Sessions. They did not tell you how much an hour 
they charge for that.
    Ms. Burns. We just got a set rate.
    Senator Sessions. Or whether they would charge a flat fee.
    Ms. Burns. They told us $1,300. I honestly----
    Senator Sessions. Well, it is going to be more than $250, I 
think.
    Ms. Edwards. I would take that as a question to me, 
although you are just sort of nodding to me. I think that there 
are some sort of straight bankruptcies that are actually 
available at fairly limited cost. That is not the kind of work 
I did, so I cannot really speak to that.
    But I think that there are some--I do not know what fees 
she is going to face, but I know that in my home district, the 
eastern district of North Carolina, that there are lawyers who 
do bankruptcies that sound similar to the one that the Burns 
are having to file that could be easily in that range.
    Senator Sessions. You mentioned the homestead exemption. I 
have always thought that this was bizarre, that a person would 
be able to keep a multimillion dollar home and not pay their 
doctor or anybody else that they owed money to.
    Do you have any feelings about that? That was a matter that 
we discussed and debated in the Senate when the bill came up 
and I supported--was it Senator Kennedy and I were in agreement 
on that issue. It came out $1 million, were you able to cap 
that at $1 million or is it unlimited now?
    Ms. Edwards. I believe it is unlimited still. I think it 
came out of the Senate bill, but it did not survive in 
conference.
    Senator Sessions. We passed it in the Senate and it did not 
survive conference, which is breathtaking to me that an 
individual can move to Florida or Texas or maybe Kansas and 
buy--they know they are going into financial difficulty. They 
buy a multimillion dollar home, pay cash for it, it is all 
equity in the home and then pay nobody that they legitimately 
owe debts to.
    Ms. Edwards. When you are talking about the abuse, and I 
think that there is a narrow sliver of abuse, but my personal 
experience was you really do not see that much of it in actual 
practice, except perhaps for the advice to people that they 
should move to one of these states with such generous 
exemptions.
    But your general concern about there being abuse, I think 
that these bankruptcy judges, for whom I have enormous respect, 
sit up there every day and hear one sad story after another sad 
story and they are very good at telling the difference between 
somebody who has got a legitimate case where they have ended up 
in bankruptcy court, sometimes because they have acted 
irresponsibly, sometimes because they have circumstances.
    But those conditions of fraud, the bankruptcy judge has an 
opportunity to dismiss those cases. They can dismiss those 
cases. So when those situations exist that Dr. Mathur is 
concerned about, that you are concerned about, somebody is 
jumping out of the window, economically, at the chance of 
breaking their arms, I think that you can count on judges being 
able to identify this.
    They are in the very best position, honestly. They are 
sitting with the debtor in front of them, with the creditors, 
who are going to give information, if they know it, right there 
in front of them.
    The least likely people to make that determination are the 
people, frankly, including myself, sitting in this room so far 
away from these individual situations.
    Senator Sessions. There is no doubt that overwhelmingly, 
the people that file for bankruptcy are entitled to it legally 
and probably benefit from it. I think a lot of people, if they 
knew the options and can negotiate some of the debts that they 
may have, might be able to work their way out of--avoid 
bankruptcy and would feel better about themselves and their 
credit rating if they are able to do so.
    But when you have huge debts from medical care or other 
reasons or maybe just improvident living, that they just are 
not able to pay them, I think one of the great things about 
America is you can wipe out those debts and start over and it 
is something that I appreciate.
    Mr. Chairman, this is a good discussion. I am sure we will 
continue it. We have a number of articles and studies that I 
would like to introduce as part of the record. We may ask these 
witnesses additional questions.
    I would just say that right now, in America, a person who 
is hit with a huge medical bill, if their income is below 
median income, the average--well, not average--median income in 
America, they can wipe out all those debts.
    If their income is above that, they can attempt to wipe 
them all out and the judge would decide whether or not they are 
able to pay some of them back, set up a repayment schedule 
under the Chapter 13 procedure and they would pay some of those 
debts back.
    I think that is a legitimate process. I believe that is a 
moral approach that is consistent with our heritage and will 
eliminate--has eliminated some abuses.
    So thank you.
    Chairman Whitehouse. I thank the Ranking Member very much 
for his courtesy and his participation in this hearing. I think 
we come at this from slightly different angles. I look at the 
credit card industry as having been behind the bankruptcy 
reform and that its primary purpose was to keep people harassed 
longer before they could get into bankruptcy, because at that 
point, they would be at 30 percent and they could keep getting 
billed.
    So we have different views about the motivations and what 
was behind it, but I hope that this hearing creates the seeds 
for an agreement that people who are in Ms. Burns' position, 
having to go through the means testing, having to go through 
credit counseling and things like that simply does not make any 
sense.
    It is a terrific and unjustified government intrusion, I 
believe, at the behest of the credit card industry, but that is 
neither here nor there, into their lives in a way that if you 
could, frankly, sit down with anybody, I think if even Ms. 
Mathur and Ms. Furchtgott-Roth were on the other side of the 
phone conversation with Ms. Burns, they would say, ``You are 
right, you do not have to go through this, this is a ridiculous 
situation that you are in.''
    So I think that there is at least the seeds for some 
potential further discussion and agreement on this issue and I 
appreciate very much your participation.
    Senator Sessions. Well, I think there is a possibility of 
further discussions and maybe we can reach some agreement.
    But I would just tell you that I do not agree with the idea 
that the bankruptcy legislation that got 83, I believe, votes 
in the Senate, people like Senator Hillary Clinton, who 
originally opposed it, studied it and voted for it, because 
they concluded it was a fair piece of legislation.
    And it is a concern that people run up any kind of debts, 
credit card or otherwise, and just not pay them and they have 
advertisements on television. They can tell people that they 
can file bankruptcy and stay in their home 2 years and we 
fought over that and were able to improve some of that.
    There are abuses in the system and these economists over 
here would tell you that if people are abusing the system, it 
is not just the credit card companies or the banks that lose, 
but everybody has to pay a higher rate of interest, in other 
words, to carry those losses.
    So I just am a little--my back gets up a little bit when it 
is suggested that the bankruptcy legislation was a piece of 
legislation designed for special interests and did not have a 
good public policy behind it.
    I stated in the core of the bankruptcy legislation that if 
you make below median income, you can wipe out all your debts. 
If you make above median income, unless the court finds that 
you can pay some back, you do not have to pay any back, and if 
the court finds you can pay some back, Mr. Chairman, should 
they not pay some back? Should they not pay the debt they 
obligated?
    Chairman Whitehouse. I think that there is a distinction 
that can be reasonably drawn between people who have 
deliberately run up debts and should pay it back and those 
who----
    Senator Sessions. So you are saying if they have a medical 
bill, they have no obligation to pay their hospital, because 
that came out of the blue and they did not plan for it.
    I would say you have an obligation if you can. If you 
cannot, you should not have to pay it and that is what the law 
says. If you can pay some of it, you can and should. If you 
cannot, you do not have to.
    Chairman Whitehouse. And I think what we are seeing over 
and over again--and, again, it relates back to the nature of 
the American health care system--is that because we leave 
families with this responsibility and do not have the kind of 
health care system that some other governments and countries do 
and because the health insurance industry sells products to 
people that lead them to believe that they have coverage, that 
it is complete and that they are protected, but ultimately 
somebody does something, through no fault of their own, in 
particular, a grievous illness in the family.
    It strikes me that at that point, we are asking enough of 
that family if we are sending them into bankruptcy because of 
an unforseen health care emergency and the question of whether 
or not they should pay a little or a lot is really secondary to 
the question of why it is necessary for American families to go 
into bankruptcy because of health care emergencies in the first 
place.
    But as long as they do, I think they are entitled to be 
treated fairly and I think this legislation is at least 
designed, we can disagree over the elements of it and we can 
talk further, but it is at least designed so that for Ms. Burns 
and people like her, the bankruptcy experience is not so 
prolonged, expensive, humiliating and unnecessary.
    The record of the hearing will remain open for an 
additional week for anything that the Ranking Member wishes to 
add or that anybody else wishes to add.
    I once again appreciate the participation of all the 
witnesses, appreciate very much the participation of the 
Ranking Member. I think this has been an interesting and a 
lively hearing and I am grateful for it.
    Thank you.
    [Whereupon, at 11:41 a.m., the hearing was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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