[Senate Hearing 111-425]
[From the U.S. Government Publishing Office]
S. Hrg. 111-425
MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH START?
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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
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Serial No. J-111-58
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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
----------
U.S. GOVERNMENT PRINTING OFFICE
56-473 PDF WASHINGTON : 2010
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
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
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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?
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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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