Medical Bankruptcy Fairness Act of 2026
- Sponsor
- Rep. Cohen, Steve [D-TN-9]
- Committees
- Financial Services Committee (primary)
- Last action
- Jul 14, 2026
Bottom line
The bill aims to provide significant financial relief and a clearer path to recovery for individuals and families facing bankruptcy primarily due to overwhelming medical debt, while also protecting their credit standing.
What it actually does
This bill amends title 11 of the United States Code (Bankruptcy Code) to create a new category of 'medically distressed debtor' and provides them with enhanced bankruptcy protections. These protections include an increased homestead exemption, waivers from the Chapter 7 means test and Chapter 13 disposable income test, an exemption from pre-bankruptcy credit counseling, and easier discharge of student loan debt. Additionally, it amends the Fair Credit Reporting Act to exclude bankruptcies filed by medically distressed debtors from consumer credit reports.
Proponents argue
Supporters argue that medical debt is often unavoidable and catastrophic, leading to financial ruin for many families through no fault of their own. This bill provides a crucial safety net, allowing individuals to get a fresh start without losing their homes or being burdened by student loans, and without their credit being permanently damaged by a medical crisis. It addresses a systemic issue where healthcare costs can lead to insurmountable financial hardship.
Opponents contend
Critics may contend that expanding bankruptcy protections, particularly for student loans and by excluding bankruptcies from credit reports, could lead to increased costs for creditors, potentially resulting in higher interest rates for all consumers or reduced access to credit. Concerns might also be raised about potential for abuse, where individuals might strategically incur medical debt to qualify for these enhanced protections, or that it shifts the burden of healthcare costs without addressing the underlying issues.
The bill is concise and its provisions are relatively straightforward, making it accessible for an informed reader to understand its core impacts within a short timeframe.
Section 2(a), Section 101 of title 11, United States Code
Defining 'Medical Debt' and 'Medically Distressed Debtor'
This section introduces new definitions into the Bankruptcy Code. 'Medical debt' is broadly defined as any debt incurred due to the diagnosis, treatment, or prevention of injury, deformity, or disease. A 'medically distressed debtor' is defined by specific criteria: having incurred or paid over $10,000 or 10% of adjusted gross income in medical debt not covered by a third party, experiencing a significant reduction in income due to a medical issue (their own or a dependent's/family member's), or losing domestic support obligations due to a medical issue of the obligor. A spouse of such a debtor also qualifies.
Supporters argue
Supporters argue that establishing clear, objective criteria for 'medically distressed debtor' ensures that the bill's protections are targeted at those genuinely suffering from medical-related financial hardship, preventing abuse while providing necessary relief.
Critics contend
Critics might contend that the specific financial thresholds and conditions for qualifying as 'medically distressed' could be either too broad, allowing individuals not truly in dire medical straits to benefit, or too complex to administer consistently, leading to disputes in court.
Tradeoffs
The provision balances the need to provide a clear pathway to relief for medical debtors with the challenge of creating a definition that is both inclusive enough to help those in need and precise enough to prevent unintended consequences or abuse.
Section 3(a), Section 522 of title 11, United States Code
Increased Homestead Exemption for Medically Distressed Debtors
This section allows medically distressed debtors to exempt a significantly higher amount of equity in their primary residence or burial plot from their bankruptcy estate. Specifically, they can exempt up to $250,000 in value, overriding lower state or federal exemption limits that might otherwise apply. This means they can retain more of their home's value when filing for bankruptcy.
Section 4(a) and (b), Sections 707(b) and 1325(b)(1) of title 11, United States Code
Waiver of Means Test and Disposable Income Test
This section waives two key administrative requirements for medically distressed debtors. For Chapter 7 bankruptcy, it exempts them from the 'means test,' which typically prevents higher-income debtors from filing for liquidation. For Chapter 13 bankruptcy, it exempts them from the 'disposable income test,' which dictates how much income must be committed to a repayment plan. These waivers streamline the bankruptcy process and make it easier for medically distressed debtors to qualify for and complete bankruptcy.
Section 5, Section 109(h)(4) of title 11, United States Code
Waiver of Pre-Bankruptcy Credit Counseling
This section exempts medically distressed debtors from the requirement to complete a credit counseling course from an approved agency within 180 days before filing for bankruptcy. This counseling is typically a mandatory prerequisite for all bankruptcy filers, designed to explore alternatives to bankruptcy and provide financial education.
Section 6, Section 523(a)(8) of title 11, United States Code
Easing Student Loan Discharge for Medically Distressed Debtors
This section amends the Bankruptcy Code to make student loans dischargeable for medically distressed debtors without requiring them to prove 'undue hardship.' Currently, student loans are notoriously difficult to discharge in bankruptcy, requiring debtors to meet a stringent 'undue hardship' standard. This change would allow medically distressed debtors to include student loans in their bankruptcy discharge, providing a more comprehensive fresh start.
Section 8(a) and (b), Sections 605(a) and 603 of the Fair Credit Reporting Act
Exclusion of Medically Distressed Debtor Bankruptcies from Consumer Reports
This section amends the Fair Credit Reporting Act to prohibit consumer reporting agencies from including any information related to the bankruptcy of a medically distressed debtor in consumer reports. This means that a bankruptcy filed by someone meeting the 'medically distressed debtor' criteria would not appear on their credit report, preventing long-term damage to their credit score and future access to credit.
This section requires any debtor seeking relief as a 'medically distressed debtor' to file a statement, under penalty of perjury, declaring that their medical expenses were not incurred for the purpose of bringing themselves within the meaning of the 'medically distressed debtor' definition.
Section 7, Section 521 of title 11, United States Code
Why it matters:This is standard legislative practice for including anti-abuse provisions. It's a mechanism to ensure the integrity of the new debtor category without making it a central, highly visible part of the bill's stated benefits.
Case for: Supporters would argue that this attestation is a necessary safeguard to prevent fraudulent claims and ensure that the enhanced bankruptcy protections are genuinely used by those facing legitimate medical hardship, thereby maintaining the integrity of the bankruptcy system.
Case against: Critics might suggest that this adds another layer of complexity and potential legal risk for already distressed debtors, who may need legal counsel to navigate the implications of such a sworn statement, potentially increasing the cost and stress of filing.
Estimated impact: This provision has a low direct financial impact but a high impact on the integrity and enforceability of the 'medically distressed debtor' status, serving as a deterrent against abuse.