Medical Debtors to the Poorhouse.

Leona Kaliser of Philadelphia survived ovarian cancer and congestive heart failure. And though she received disability insurance, her health insurance didn't cover all of her co-payments and deductibles. "I have to go for a lot of different tests and blood work. And I have to see a lot of doctors every couple of months, or more often when I have problems," she says. "And when my out-of-pocket money was depleted, I went to the credit cards."

She dutifully paid her bills, exceeding the minimum "whenever I had a little savings." But when her disability insurance ran out and her pension kicked in, her income plummeted, and she could no longer meet her minimums. During that whole time, she continued to receive solicitations for more credit cards--as many as ten in a day. "I would tell the people, `This is silly, I can't afford to pay you, and I don't need more credit,' but they kept calling."

Kaliser's situation is not unusual. Nearly half of all bankruptcies in the United States are the result of medical debt. But the bankruptcy bills the House and Senate passed this spring would make it harder for people like Kaliser to declare bankruptcy--and make it easier for creditors, including credit card companies, to force repayment.

"Whenever we talk about credit card debt, there's an assumption that credit cards are used to buy a fur coat on the way to the bankruptcy court," says Melissa Jacoby, a Temple University law professor. "Credit cards are very often used to finance the purchase of medical supplies and medical care and the like."

Credit card companies increased the credit they extended nationally by 17 percent last year and sent out 3.3 billion solicitations--about a dozen for every man, woman, and child in the country.

"Credit card issuers are brazenly lobbying for new bankruptcy restrictions at the same time their aggressive marketing and lending practices are pushing many families closer to the financial brink," says Travis Plunkett, legislative director for the Consumer Federation of America. "While the issuers urge Congress to deny families access to bankruptcy relief, their profits are soaring."

"Why don't we call on the credit card companies to be accountable?" asked Senator Paul Wellstone, Democrat of Minnesota, during debate on the Senate bill this spring. "They need to be held accountable for their predatory lending practices."

Unfortunately, credit cards are often the only available route when medical bills mount. "What we see are people who are barely getting by and can't pay their medical bills," says Siana Newman, counselor with the National Bankruptcy Assistance Project. "So they're putting their food or clothing on their credit card because they're worried about how they are going to pay the hospital bill. And all of their disposable income goes to pay the doctor or the hospital, or to pay for their prescriptions at the pharmacy."

I n an effort to filter out abusers of the system, the bankruptcy legislation would create new hurdles for debtors. Those who want to declare bankruptcy would have to go through consumer credit counseling at their own expense. "What the system is going to tell you now is that you can't declare bankruptcy, you have to go to credit counseling," says Jacoby. "A credit counselor can look at your case and realize that it's hopeless, but nonetheless you have to certify that you went to credit counseling before you can declare bankruptcy."

Opponents of this provision see it as an undue and ill-timed burden. "Right at the point that people are facing bankruptcy for large medical bills, they are going to have to spend a few hundred dollars on credit counseling and travel downtown, or wherever, every week to have a two-hour session on how to manage credit," says Jim Farrell, an aide to Senator Wellstone. "They don't have any money, a lot of these people don't have cars, and it's just another added expense and hardship at a time when they can least deal with it." But, he adds, the provision would be "a windfall for the credit counseling industry."

Once someone has completed credit counseling, they must negotiate the "means test." Under the means test, no one with an income above 80 percent of a state's median income can have debt eliminated through Chapter 7 of the bankruptcy code, which allows debtors a clean slate--free of debt. Instead, these people must apply for protection under Chapter 13, which forces them to set up a monthly payment with their creditors, regardless of the type of debt incurred.

"There are things that you get to deduct from this formula that are clearly going to benefit people with higher incomes," says John Rao, attorney with the National Consumer Law Foundation, located in Boston. For instance, all secured debt--on such things as house and car payments--is deducted from income under the means test. "And it's not just one car," says Rao, "it's two cars, or three. There's no limitation; you get to deduct the payments on those loans." Under the proposed law, a person with a good lawyer could use secured debt to sneak in under the means-test threshold, while a middle-income person with few assets would have no such benefit, Rao says.

But even if someone can negotiate the means test and declare bankruptcy, there are other nettlesome requirements sprinkled throughout the legislation.

These requirements favor credit card companies. "A person who files Chapter 13 can now be subjected to an action filed by the credit card company objecting to the discharge," says Rao. "In the past, that was just one debt among many to be paid, and under Chapter 13 it might be paid at forty or fifty cents on the dollar. But under the new legislation, the credit card companies can come in and say, `No, we believe that this person had no intention of repaying. This was obtained by fraud,' and challenge the dischargeability."

There are no exceptions for medical debt. This spells trouble for people like Charles Trapp. As a postman in Plantation, Florida, Trapp had what he considered to be good health insurance. But when his four-year-old daughter, Annelise, was diagnosed with myopathy, a disease of the muscle tissue, in 1992, her medical expenses added up quickly. "Our insurance has paid out literally millions of dollars for Annelise's care," said Trapp during testimony before the House Judiciary Committee earlier this year. "But when you have a chronically ill child such as Annelise, even the relatively small portion of her medical expenses that we are responsible for adds up to a considerable amount of debt."

Faced with $124,000 in medical bills and the prospect of losing their house, the Trapps filed for bankruptcy.

Senator Wellstone introduced an amendment that would have provided that no provision of the bill apply to a debtor who files for bankruptcy if a court determined that the debtor filed as a result of overwhelming medical expenses. That amendment was rejected 65-to-34 by the Senate, which went on to pass the entire bill 84-to-15. The House overwhelmingly passed a similar bill, and the legislation is now in conference committee, hung up on an amendment--opposed by President Bush--that would prevent millionaire debtors from shielding assets in expensive homes.

Both Jacoby and Farrell are worried about the impact of this legislation on low- and moderate-income people saddled with high medical debt. "At a time when we are already struggling with health-care-finance issues, and at a time when the economy appears to be not behaving as we would hope, this is a dangerous thing to do," says Jacoby. "There are going be more people who need the system, not fewer, unfortunately, but this bill will make it less accessible."

The changes in bankruptcy law are likely to go through some time this summer. If and when that happens, people who need protection from medical debts will be in trouble. Farrell strikes a fatalistic tone: "For the working stiff and the single mother and seniors on fixed incomes with no health insurance, the rules just got a lot tougher and the world just became a much meaner place."

Matt Olson is a freelance writer in Madison, Wisconsin.