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Bankruptcy bill could be a pain for people with high medical costs
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Curtis Walker represents the financially strapped in bankruptcy court. He says many people will join the underground economy if they can't file for bankruptcy. (MPR Photo/Tom Scheck)
Congress is poised to give final approval to the biggest changes in the nation's bankruptcy laws since 1978. The bill would make it tougher for consumers to wipe out their debts and start their financial lives from scratch. The measure could affect thousands of Minnesotans.

St. Paul, Minn. — Jim Boggs filed for bankruptcy four years ago after being diagnosed and treated for lung cancer. When he first started feeling sick, he went to a low cost health clinic. Boggs didn't have health insurance and was startled when he was diagnosed. After undergoing a battery of tests, surgery and a lengthy stay at Fairview University Medical Center, Boggs was left with a large medical bill.

"I guess it was a $104,000," Boggs said.

Boggs says he couldn't afford to pay a bill that size on his job driving handicapped people and delivering medical supplies.

He filed for Chapter 7 bankruptcy which erased his medical, credit card and other debts.

"It was way more than I made a month. The hospital wanted $600 a week. I don't make $600 a week," Boggs said. "...I really didn't have any choice. I don't make that much money."

The bill that's being debated in Congress would make it much more difficult for Boggs and others to erase their debts. The changes would require consumers to get credit counseling and supply pay stubs before they can file for bankruptcy. Supporters say it will ensure that those who can pay back their debts do so. But opponents of the bill say consumers, especially those strapped with high medical costs, will be financially ruined.

"The hospital wanted $600 a week. I don't make $600 a week. It was something that I really didn't have any choice, ya know? I don't make that much money."
- Jim Boggs - who filed for Chapter 7 bankruptcy.

Steffie Woolhandler, a professor at Harvard Medical School co-authored a report that analyzed 1800 families who filed for bankruptcy across the country.

"About half of all bankruptcies were due to medical illness or due to medical bills and that's quite a bit higher than most people have believed," Woolhandler said.

Woolhandler didn't study Minnesota's bankruptcy filings specifically. But if her data is correct and the national rate can be applied to the state, about 8,800 Minnesotans filed for personal bankruptcy in 2004 because of medical costs.

"It's completely inappropriate for Congress to punish people because they got sick," Woolhandler said. "Many people are bankrupted by circumstances beyond their own control."

Supporters of tightening the bankruptcy law say the Harvard study's estimate of financial troubles due to medical emergencies seems high, but they don't offer any data to contradict it.

Scott Talbott, the Vice President of Governmental Affairs at the Financial Services Roundtable in Washington D.C, which backs the legislation says his group represents the 100 largest financial services companies in the nation. Talbott says the bill targets people who recklessly max out their credit cards and file for bankruptcy so they don't have to pay their bills. He says he's concerned that the number of personal bankruptcy filings is increasing.

"It's all about inequity and ending abuse," Talbott said. "Why should those people who have the ability to repay be allowed to discharge all of their debts when the rest of Americans are asked to repay those?"

Data from the U.S. Bankruptcy Court in Minnesota says 17,726 Minnesotans filed for Chapter 7 or Chapter 13 bankruptcy in 2004, a 31 percent increase over the past ten years.

Talbott says the bill wouldn't prevent people from declaring bankruptcy altogether. Rep. John Kline, R-Minn., agrees and intends to vote for the bill. Kline says anyone who has a high amount of debt due to health care costs will still be able to file for bankruptcy.

"This is the case where things have, beyond their control, have forced people into a position where they can't pay their bills," Kline said. "That's what bankruptcy is for. That's why it's allowed in the first place."

But those who represent people who are financially troubled say many will decide it's too difficult to file for bankruptcy. Minneapolis bankruptcy attorney Curtis Walker predicts that fewer people will file. But he says that doesn't mean creditors will necessarily get the money they're owed. Instead, he says, the debtors will virtually disappear.

"There's going to be a couple of million people a year who basically can't live in the above ground economy," Walker said. "They're probably going to do what you would call informal bankruptcy or will stop answering the phone or move and not tell anyone a forwarding address."

Walker encourages consumers who are considering bankruptcy to file soon. He's running TV ads telling people to act before the bill becomes law. President Bush says he intends to sign the bill and it will take effect six months after he does.

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