Bankruptcy Aid to Financial Sufferers of COVID 19

COVID 19 outbreak since it was first diagnosed has negatively affected the global economic growth.  It has spread to over 200 countries and all the U.S. states. Keeping this in mind, Democratic senators have resuscitated a bill pointed towards giving a simpler way into bankruptcy for Americans experiencing financial losses due to the COVID-19. According to the recent change of power in the Senate and by the appointment of President Biden, now there is a certainty that the Bill S. 4305 (116th) titled “The Medical Bankruptcy Fairness Act” (the “Proposed Act”) will come into effect after so many previous unsuccessful attempts. This proposed act will make the bankruptcy filing easy and less burdensome for specific filers and will give additional advantages which are not presently available for other filers.

The bill proposes to amend Section 101 of title 11, United States Code by inserting paragraph (39B) and paragraph (39C) [Section 2, New Amendment]. The paragraph 39 B defines the term “medical debt” and 39C defines “medically distressed debtor”. These definitions have developed new position of the debtor.  The term medically distressed debtor incorporates those filers who have exhausted their limit for medical expenses. It is currently 10% of the filer’s adjusted gross income or $10,000.00. The debtor who is claiming the designation will be required to file attestation for confirming that the “medical debt” was not caused to bring the account holder inside the importance of a “medically distressed debtor”. [Section 7, New Amendment]. But in an obvious affirmation of the tie between loss of work and loss of health care coverage, the Proposed Act likewise appears to characterize a “medically distressed debtor” as any indebted person who had diminished pay or who lost their employment “because of” COVID-19. Further to this, the Proposed Act gives relaxation to “medically distressed debtor” from the credit counseling requirement [Section 5, New Amendment]. The debtor need not to go through the credit counseling requirement which every debtor had to meet since 2005. The reason behind the removal of the credit counseling requirement is that, a “medically distressed debtor” who has been bankrupt only due to this pandemic and without any fault of his, should not need any extra financial education. 

Notwithstanding, the Proposed Act does not simply make the procedure simpler to declare financial insolvency, the Proposed Act also tries to give a few remarkable advantages to a “medically distressed debtor” that are inaccessible to different filers. Section 3 of the Proposed Act provides exemptions which eventually amended Sub section (r) of Section 522 of title 11, United States Code. This change would provide an exemption to “medically distressed debtors” up to $250,000 in their residences. In this way, the debtors won’t lose their homes subsequent to filing bankruptcy. That is a very different outcome than that looked by other insolvency filers.

Section 6 of the Proposed Act has made amendments to Section 523(a)(8) of title 11, United States Code. It impacts the treatment of “medically distressed debtors’” student loans. In the present scenario, to discharge student loans debt, a debtor has to file adversary proceeding in his or her own bankruptcy case. Besides, the debtor has to persuade a Bankruptcy Judge about existence of any undue hardship to pardon reimbursement of those understudy loans. The Act, however, appears to remove this lengthy procedure by making the student loans completely dischargeable for those filers considered as the “medically distressed debtors”.

At this time, it is unsure to figure out the odds of the Proposed Act turning out to be law, yet on the off chance that it does, this act would bring various alternatives in which the bankruptcy process works in a world actually managing the financial fallouts from the COVID-19 pandemic. There is an expectation that the enactment intended to help those genuinely suffering monetarily from this pandemic doesn’t regress into nonstop suit over who is or is definitely not a “medically distressed debtor.”

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