S. HRG. 111–425 

MEDICAL DEBT: CAN BANKRUPTCY REFORM 

FACILITATE A FRESH START? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT 

AND THE COURTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

OCTOBER 20, 2009 

Serial No. J–111–58 

Printed for the use of the Committee on the Judiciary 

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MEDICAL DEBT: CAN BANKRUPTCY REFORM FACILITATE A FRESH 

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56–473 PDF 2010

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 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

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 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

EDWARD E. KAUFMAN, Delaware 

JEFF SESSIONS, Alabama 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY GRAHAM, South Carolina 

SAM GOODSTEIN, Democratic Chief Counsel 

MATT MINER, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama .......................... 3 

prepared statement .......................................................................................... 340 

Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode Island ...... 1 

WITNESSES 

Burns, Kerry, Coventry, Rhode Island ................................................................... 4 

Edwards, Elizabeth Edwards, Senior Fellow, Center for American Progress, 

Wahington, DC ..................................................................................................... 7 

Furchtgott-Roth, Diana, Senior Fellow, Hudson Institute, Washington, DC ..... 13 

Mathur, Arpana, Research Fellow, American Enterprise Institute for Public 

Policy Research, Washington, DC ....................................................................... 11 

Pottow, John A.E., Professor of Law, University of Michigan Law School, 

Chevy Chase, Maryland ....................................................................................... 9 

QUESTIONS AND ANSWERS 

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

Responses of Aparna Mathur to questions submitted by Senator Sessions ....... 41 

SUBMISSIONS FOR THE RECORD 

American Law & Economics Association, Jonathan Fisher, Bureau of Labor 

Statistics, Larry Filer, Old Dominion University, Department of Economics, 

and Angela Lyons, University of Illinois, Champaign-Urbana, Department 

of Agricultural and Consumer Economics, article ............................................. 46 

Bucks, Brian, Federal Reserve Board, International Association for Research 

in Income and Wealth, Washington, DC, survey ............................................... 67 

Burns, Kerry, Coventry, Rhode Island, statement ................................................ 91 

Edwards, Elizabeth Edwards, Senior Fellow, Center for American Progress, 

Washington, DC, statement ................................................................................ 94 

Emanuel, Ezekiel J., MD, PHD, and Victor R. Fuchs, PHD, March 5, 2008, 

article .................................................................................................................... 142

Federal Trade Commission for the Consumer, Washington, DC, November 

2006, article .......................................................................................................... 145 

Fraser Institute, Canada, July 2009, article ......................................................... 149 

Furchtgott-Roth, Diana, Senior Fellow, Hudson Institute, Washington, DC, 

statement and attachment .................................................................................. 154 

Fay, Scott, Erik Hurst and Michelle J. White, Household Bankruptcy Decision ........................................................................................................................ 175 

Investors.com, David Hogberg, article ................................................................... 188 

Journal of the American Enterprise Institute, Brett J. Skinner, August 19, 

2009, article .......................................................................................................... 192 

Mathur, Arpana, Research Fellow, American Enterprise Institute for Public 

Policy Research, Washington, DC, statement and attachment ........................ 196 

McNamara, Jane E., President and CEO, Greenpath, Inc., Farmington Hill, 

Michigan, statement ............................................................................................ 256 

National Bankruptcy Research Center, Houston, Texas, May 2009, study ........ 259 

Pottow, John A.E., Professor of Law, University of Michigan Law School, 

Chevy Chase, Maryland ....................................................................................... 284 

Robertson, Christopher Tarver, Richard Eglelhof and Michael Hoke, survey ... 300 

Page

IV 

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 

(1) 

MEDICAL DEBT: CAN BANKRUPTCY REFORM 

FACILITATE A FRESH START? 

THURSDAY, OCTOBER 20, 2009 

U.S. SENATE, SUBCOMMITTEE ON ADMINISTRATIVE

OVERSIGHT AND THE COURTS

COMMITTEE ON THE JUDICIARY, Washington, DC 

The Committee met, pursuant to notice, at 10:03 a.m., Room SD– 

226, Dirksen Senate Office Building, Hon. Sheldon Whitehouse, 

Chairman of the Subcommittee, presiding. 

Present: Senators Feingold, Franken and Sessions. 

OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. 

SENATOR FROM THE STATE OF RHODE ISLAND 

Chairman WHITEHOUSE. Thank you all very much for being here. 

I want to thank the Ranking Member, Senator Sessions of Alabama, for being here. I see my colleague from Minnesota, Senator 

Franken, delighted that he is here. 

As we in Congress continue working on broad legislation to reform our broken health care system and ensure accessible, affordable health insurance for all Americans, we take advantage of this 

hearing today to examine a particularly cruel effect of our current 

system—the millions of Americans drowning in medical debt. 

As health care costs continue to increase, so do the number of 

people who go bankrupt paying essential medical bills for themselves or their loved ones. 

Harvard University researchers recently estimated that medical 

debts are a driving force in over 60 percent of personal bankruptcy 

filings. Three-quarters of the medical debtors in that study were 

covered by medical insurance. They acted responsibly and thought 

they were covered, but were bankrupted by copays, deductibles, 

premiums, coverage limits, and uncovered expenses. 

Families who think they are protected may be only one accident, 

one injury or one diagnosis away from family bankruptcy. Unfortunately, the bankruptcy code does not distinguish between debtors 

driven into bankruptcy by medical bills and those who become insolvent through poor planning or reckless spending. The Medical 

Bankruptcy Fairness Act would change that. 

If enacted, this bill would waive procedural hurdles for filers 

with high levels of medical debt. It would waive the means test and 

credit counseling requirements, which are unnecessary, time-consuming, costly, even humiliating for debtors forced to file by medical misfortune. 

2 

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. 

3 

[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 

4 

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. 

5 

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 

6 

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. 

7 

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 outof-pocket spending relative to family income created medical bill 

problems. 

8 

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. 

9 

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 willynilly 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. 

10 

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 alVerDate Nov 24 2008 14:36 May 25, 2010 Jkt 056473 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\56473.TXT SJUD1 PsN: CMORC
11 

most 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 

12 

$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 behavVerDate Nov 24 2008 14:36 May 25, 2010 Jkt 056473 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\56473.TXT SJUD1 PsN: CMORC
13 

ior 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. 

14 

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 

15 

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. 

16 

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 

17 

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 

18 

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 

19 

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 

20 

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 

21 

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. 

22 

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. FurchtgottRoth, 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? 

23 

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. 

24 

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. 

25 

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. 

26 

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. 

27 

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 reascertain 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. 

28 

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. 

29 

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? 

30 

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 winVerDate Nov 24 2008 14:36 May 25, 2010 Jkt 056473 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\56473.TXT SJUD1 PsN: CMORC
31 

dow, 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, 

32 

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 

33 

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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