A few months ago, I wrote about a hospital in Memphis that made national news for suing its employees for unpaid medical bills.
At the time, I was critical of the practice, both because it was terrible public relations for the employer and also such a hardship on the employees.
This new decision from the Bankruptcy Court for the Central District of Illinois suggests that this practice may hurt the employees worse than I anticipated.
In that case, the Chapter 7 debtor was faced with $164,053.95 in unsecured debt, of which $82,000 was for medically necessary services. To avoid the “means test” and stay in Chapter 7, she argued that her debts were not “primarily consumer debts” under Section 707(b)(1). The US Trustee objected, arguing for a conversion to Chapter 13.
The debtor had an interesting argument: medical debts are not “consumer debt,” as defined under the Bankruptcy Code, because medical debts are not incurred voluntarily, and “similar to tax debts that have been held by several courts not to be consumer debts.” See In re Westberry, 215 F.3d 589 (6th Cir. 2000).
Ultimately, considering the purpose and nature of medical bills, this Bankruptcy Court found the debts to be consumer debt, subjecting the debtor to the means test and forcing the case into a Chapter 13.
It’s a well reasoned opinion, but it has some pretty harsh applications to debtors in places like Memphis, where medical debts can crush debtors.
Sure, relief under the Bankruptcy Code is still available to this debtor, but, in situations like this, a debtor will have to deal with those debts in a chapter 13 plan, which requires the debtor to make payments over a 3 to 5 year plan. The rate of success in those cases is low, meaning that the case could get dismissed and the debtor isn’t able to get the debts discharged.