Family & Consumer Sciences

HOME

Kentucky High School Financial Planning Home Page

Back to E-Mail Updates page

HSFPP Weekly Update #122—New Bankruptcy Law  

Message from Bob & Chris: A recent Harvard study showed that medical bills are the cause of nearly half of all personal bankruptcies. Many of these include people who have health insurance. A new bill in Congress would make it more difficult for consumers to file for Chapter 7 bankruptcy, which clears almost all debts. Certain types of debt are not dischargeable under bankruptcy, such as money owed for child support or alimony, fines, and some taxes, student loans owed to a school or government body, to name a few, except if the court decides that payment would be an undue hardship. The new proposed law would put more consumers into Chapter 13 bankruptcy. It also does not distinguish between those who have gone broke due to circumstances beyond their control—losing their job or their healthcare coverage or working at jobs that do not pay them enough money so they can afford comprehensive health insurance—and those who just overuse their credit and abuse the system.

 

Related Updates:
Update #100 - Bankruptcy Judges Warn Young Consumers About Credit Card Debt - 4 October 2004

 

Website Pick of the Week:

http://www.bankruptcyinformation.com/KY.htm

This site on bankruptcy in Kentucky includes exemptions and statistics.

 

Activity for Educators:

Have students read this week’s article In the New$..., as well as the short article at http://www.law.harvard.edu/news/2005/02/03_bankruptcy.php about the Harvard Bankruptcy study. Then ask students what they think about the proposed new law in relation to the study. Use the discussion questions below.

These following Web sites will help teens doing the student activity to find information on the pros and cons of the proposed bankruptcy law:

http://judiciary.senate.gov/hearing.cfm?id=1381
http://www.pbs.org/newshour/bb/congress/jan-june05/changes_3-02.html
http://archives.cnn.com/2001/ALLPOLITICS/03/15/snow.debrief/
http://www.medicalnewstoday.com/medicalnews.php?newsid=20084

Step One:
Break students into two groups: those in favor and those against changes in the bankruptcy law. Have each group develop a position paper to state their case. Then have the two groups debate their positions, giving each side adequate time to rebut the others’ arguments with facts, as well as provide ways to overcome the negative impact of any changes in bankruptcy law.

Step Two:
Have your students write letters to a newspaper, to the governor, or to Kentucky’s state senators or representatives. Examples of letters are included on the Web Site Pick of the Week. Students can base their letters on research used in the debate.

 

In the New$... Bankruptcy Bill Near Senate Passage

“Law would make it harder for consumers to avoid debts

“ WASHINGTON – The Senate marched Wednesday toward passage of landmark legislation making it harder to erase medical bills, credit card charges and other debts in bankruptcy....”

“Banks, credit card issuers and retailers have pushed for eight years for bankruptcy revisions that would force more people to repay at least part of their debt. It nearly passed in 2002 — failing when the Senate accepted, but House Republicans rejected, a Democratic amendment barring protesters from using bankruptcy to avoid paying court fines for blocking abortion clinics.”

“The bill would set up a new test for measuring a debtor’s ability to pay.

“Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which if approved by a judge erases debts entirely after certain assets are forfeited. But those with income above the state’s median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would then order a repayment plan.

“Critics say that’s unfair because many people who file for bankruptcy have lost their jobs, or are going to lose them.

“According to current law, a bankruptcy judge determines under which chapter of the bankruptcy code a person falls — whether they have to repay some or all of their debt.”

“The bill’s supporters argued that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires, often celebrities, who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

“Opponents, too, have a litany of stories. [Sen. Edward M.] Kennedy [D-Mass.] speaks of Zoraya Marrero, a single mother with three children from Woodbridge, Va., the eldest of whom has spina bifida. Having had to return $60,000 in state disability benefits and medical coverage for the child, and paying medical expenses, Marrero recently filed for bankruptcy.”

“A recent Harvard University study found that costly illnesses led to about half of all personal bankruptcies.”

Source: Associated Press http://www.msnbc.msn.com/id/7136998/

 

Discussion questions:

1. Should people who file for bankruptcy because of medical bills or loss of job get special consideration?
   
   
2. What does this situation say about the state of health insurance today? What changes can be made to health insurance so people don’t go bankrupt because of medical bills?

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.