A recent bankruptcy court decision out of Ohio is important in view of the possibly significant medical expenses incurred by some patients receiving emergency hospital care during the COVID-19 pandemic. In an apparent case of first impression, the court addressed the question of whether medical bills should always be treated as “consumer debts”, which the Bankruptcy Code defines as those incurred primarily for a personal, family or household purpose.
Generally speaking, in order for a debtor to qualify for a Chapter 7 bankruptcy discharge, her income must be below the median income for her household size. This calculation is done under what is referred to as the “means test.” It’s possible to avoid the means test (and file a Chapter 7 even if your income is over the median income for your household size), if more than half of your debt is “non-consumer” debt. Under Section 707 of the Code, the court may dismiss a petition if the bulk of the listed debts are for consumer purposes and the court finds that allowing their discharge would be an abuse of the bankruptcy process.
In 2018, William Sijan was hospitalized with severe pneumonia. Sijan at first refused to be hospitalized. He relented only after being told he was at imminent risk of death. Sijan remained hospitalized for more than a month, incurring almost $325,000 in medical bills. In 2019, Sijan filed a Chapter 7 bankruptcy petition. He listed the hospitalization expenses, which represented nearly 75 percent of his total debt. The remainder consisted of a secured auto loan and miscellaneous credit card and other unsecured debts. The trustee asked the court to dismiss Sijan’s petition under Section 707.
The only issue before the court was whether Sijan’s medical expenses were “consumer debts”. If so, there was no serious question that permitting him to avoid repayment through the bankruptcy process would be abusive within the scope of Section 707 and justify dismissal.
Consumer Debts Must Be Voluntarily Incurred
The court looked to the facts of the case, noting that medical expenses are virtually always personal. However, it contrasted Sijan’s debts with those incurred in seeking or receiving medical care for a non-life-threatening condition.
The court discussed and distinguished various prior decisions dealing with debts not encompassed within the “consumer” definition. It concluded that while the modifying terms “voluntary” or “voluntarily” are not contained in the Bankruptcy Code definition of “consumer debt”, an element of voluntariness is implied in Section 707. It found that because Sijan’s alternative to incurring the medical expenses was almost certain death, it could not be considered a voluntary decision on his part. The court thus denied the trustee’s motion to dismiss Sijan’s petition.
Significance And Caution
While significant, the Sijan decision is limited to its rather unique facts and is not by any means a repudiation of Section 707. Those considering accumulating significant personal debts – including debts for non-emergent medical care – before seeking bankruptcy protection would do well to consider the genuine possibility of dismissal of their petitions under this Code provision.
If you have any questions about the bankruptcy process, including whether or not your debts would be considered consumer or non-consumer, we hope you’ll schedule a free bankruptcy consultation with an experienced Colorado bankruptcy attorney. You can make an appointment by clicking here.