By Phil Porter

Janice Lee is afraid to look at her medical bills for non-Hodgkin’s lymphoma treatment. “Medical expenses have just steamrollered over me. I have no idea how much I owe. It ’s pretty scary.”

Lee, who owns an Asian restaurant in Wilmette, Illinois, says her financial concerns magnified after she heard about Congress overhauling the federal bankruptcy law, making it more difficult for Americans to wipe out their debt. The new law takes effect Oct. 17 and will require many debtors to work out repayment plans instead of having the debt erased, prompting opponents to claim cancer and other medical patients will be adversely affected. Bankruptcy lawyers encourage people to file before the deadline to avoid higher costs and more restrictions under the new law.

“The law will make it considerably more difficult to qualify for bankruptcy,” says David Himmelstein, MD, associate professor of medicine at Harvard University, who released a study on medical bankruptcies earlier this year. According to the government, 1.6 million Americans filed for bankruptcy in 2004. About half of all personal bankruptcies are medically related, of which about 10 percent are cancer related, according to Dr. Himmelstein’s study of five federal courts in 2001.

After eight years of debate, Congress approved in April the first significant revision of bankruptcy law in 27 years. The new law was a victory for those who complained about a rising tide of abuse of the bankruptcy system, including the nation’s largest banks, credit card companies, retailers and President Bush, who said moments before signing the bill that “this practical reform will help ensure that debtors make a good-faith effort to repay as much as they can afford.”

But Dr. Himmelstein sides with civil rights, labor and consumer organizations that see the law as having a potentially devastating effect on people’s ability to obtain debt relief under bankruptcy. He’s particularly concerned about the vulnerable population with extraordinary medical expenses.

But most cancer patients avoid bankruptcy, and supporters of the new law say they should not tremble at the new legislation. Though medical bills can spiral out of control for those who have inadequate health insurance or who have lost a job or insurance, help is available from estate or bankruptcy lawyers, financial advisors or groups like the Patient Advocate Foundation, which serves as a liaison between patients and insurers. Help finding an attorney also can be obtained from state and local bar associations and the National Association of Consumer Bankruptcy Attorneys.

Specifically, the new law, named the Bankruptcy Abuse Prevention and Consumer Protection Act, disqualifies more people from filing for Chapter 7, the form of bankruptcy that wipes clean a bankruptcy filer’s debt to allow for a fresh start. Instead, it would impose a “means,” or income-level, test that would require more debtors to file for bankruptcy protection under Chapter 13, which requires a repayment plan. But those with insufficient income or assets can still file for Chapter 7.

The law also imposes new costs on those filing for bankruptcy, and the cost of hiring a lawyer is expected to rise because of more paperwork. The cost of filing for bankruptcy varies by state but currently ranges from $1,000 to $3,000 for an uncomplicated bankruptcy for a family of low to moderate means. Those costs could double once the new law takes effect, bankruptcy lawyers say. Individuals will have to undergo credit counseling before filing and wait longer to file successive bankruptcies.

The Harvard research showed that though the nation’s 45 million uninsured were more likely than the average person to file for medical bankruptcy, 75 percent of 1,771 Americans surveyed for the study had health insurance at the onset of their illness.

“Medical bills can ruin even the upper middle class,” says Lee, who lives in an upscale Chicago suburb. She was insured before and after her diagnosis two years ago, but her health insurance only paid for 80 percent of expenses and proved inadequate. Her first hospital stay to diagnose her illness cost $10,000, which has ballooned to an estimated $150,000 in medical bills she says she can’t pay. An endless parade of chemotherapy, radiation and scans has left her on the brink of bankruptcy.

“I’m scared to even answer the phone. I have medical creditors calling me left and right,” Lee says. “I have bags of medical bills, and most of them are so confusing that I don’t even know what they’re talking about.”

Her dilemma raises the sobering question of whether cancer patients with extraordinary medical bills will face the choice of passing up potentially lifesaving treatment to avoid bankruptcy. “I don’t think this is going to deny people treatment. That wasn’t the intent of the statute,” says Eleanor Haynes, a personal bankruptcy attorney in Columbus, Ohio.

But Haynes admits the law treats patients with different incomes disparately. “Usually, it’s people with no medical insurance that are most in danger,” she says. “They usually end up with barely a roof over their heads.” And for economically disadvantaged cancer patients, studies have shown poor patients may avoid treatment or receive lesser care.

Congress included an amendment that allows ongoing and future medical expenses for an individual or a family member to be excluded from the legislation’s new means test. The effect is that people who need treatment and are out of money should still be able to file for Chapter 7 protection.

Many bankruptcy lawyers and judges opposed the law in Congress as overly burdensome to middle- and low-income individuals. And many point out that people with extraordinary medical bills are a separate case from those who were abusing the system. “The majority of people with extraordinary medical bills want to pay their bills,” says Haynes.

Lloyd Cohen, another personal bankruptcy lawyer in Columbus, recalls a man who sold and mortgaged everything he owned to fund his deductibles and co-payments for cancer treatment only to face a mountain of unpaid medical debt.

“Even though he was happy that he survived cancer, he was upset that the system imposed disincentives on responsible conduct,” says Cohen.
People with huge outstanding medical bills usually get to the point where creditors sue them or file a garnishment against their homes, bankruptcy lawyers say. But when it comes to cancer, patients don’t have a choice but to run up bills.

“The medical bills just keep coming. They’ve financially destroyed me,” says Steve Jenkins, 37, a lymphoma patient from Groveport, Ohio. Told by his oncologist that he could not work for a year, Jenkins now lives between his mother’s and girlfriend’s homes. His $10-an-hour job as a forklift operator failed to pay health insurance, so he quickly piled up nearly $50,000 in medical bills. Jenkins hopes to file for bankruptcy before Oct. 17, but he says he first needs to save enough money to file.

Not everyone thinks the new provisions are more onerous. “This should not have a disparate impact on people with large medical bills,” says Samuel J. Gerdano, executive director of the American Bankruptcy Institute, whose members, including attorneys, debtors and creditors, predict a 20 percent increase in filings between April and the date the new law takes effect. “People are being encouraged by lawyers to take advantage of the law they know,” Gerdano says.

But anyone considering medical bankruptcy should also consider when not to file as well as other tips for surviving medical crises.

“The real question is not how to avoid bankruptcy but how to minimize the impact of a serious medical problem,” says Elizabeth Warren, JD, a law professor and co-author of the Harvard medical bankruptcy study. Among her suggestions: If you’re deep in debt, try to avoid filing bankruptcy until after a medical or other financial crisis has past. The new law exempts future medical expenses from the means test, but they still may have to be repaid at 100 percent.

“It’s possible to remain on the verge of bankruptcy for a very long time,” Warren says. “Businesses use the threat of filing for bankruptcy all the time to get a better deal from creditors. I see no reason why a family devastated by cancer should not use the same negotiating procedure.” In other words, it could be possible to negotiate to pay only 50 percent or so on your medical or other bills if the threat of bankruptcy is used as a bargaining chip.

Warren also warns not to take out a second mortgage to pay off medical debts. This usually pushes a patient or family one step closer to losing their home. Experts also suggest speaking to a reputable bankruptcy or estate attorney. They can offer advice on when to keep a house and when to sell it, what bills to pay and how to transfer assets to protect them.

Debtors may go to extraordinary lengths to protect their assets, but Congress lengthened one look-back provision of putting assets in a trust if a person did so to avoid creditors, bankruptcy attorneys say. This means the government can take an asset if it was sheltered only recently to avoid creditors. Otherwise, the amount of time the government can “look back” to recapture sheltered assets varies by state.

Employing such techniques doesn’t mean a patient can always avoid the pain of financial hardship, but by seeking information and help from available resources, experts say patients can climb out of debt.