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Legislation would offer student loan relief for medical debtors

A couple weeks ago, we mentioned that while most debts can be discharged in bankruptcy, student loans typically cannot. The chances of student loans being discharged are so slim and the process so expensive that most people do not even attempt it.

But as the price of higher education continues to rise at a rapid pace, student loan debt is quickly becoming a burden that Americans can no longer bear. Recently, one federal lawmaker wanted to offer a way out of student loan debt for bankruptcy clients hampered by another major money problem: medical debt.

Overwhelming medical debt is the most common reason that Americans file for personal bankruptcy. Even with health insurance, one medical emergency can result in medical bills totaling tens of thousands of dollars. Senator Sheldon Whitehouse from Rhode Island recently proposed a measure called the “Medical Bankruptcy Fairness Act” that seeks to change current consumer bankruptcy rules.

Under the proposal, an individual would be classified as a “medically distressed debtor” if he or she has $10,000 or more in medical debt or has paid more than $10,000 in medical bills in the previous three years. People with this classification would be able to discharge their student loans in bankruptcy along with their other debts.

Sadly, it seems quite unlikely that the Medical Bankruptcy Fairness Act will pass for a number of reasons, including the fact that the financial-services industry has a powerful lobbying presence in Washington. But as student loan debt becomes an ever-larger threat to the financial health of average Americans, bills like this will likely gain more and more support.

Source: The Wall Street Journal, "Bill Would Let ‘Medically Distressed’ Cast Off Student Loans," Katy Stech, Aug. 1, 2014

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