Medical Bankruptcy Fairness Act of 2026

Key Points

• The bill creates a new legal category called a 'medically distressed debtor' for people who racked up over $10,000 or 10 percent of their income in unpaid medical debt over three years, or who lost income because of illness or caregiving.
• Qualifying debtors could protect up to $250,000 of equity in their home, co-op, or burial plot during bankruptcy, instead of relying on often much smaller state homestead exemptions.
• The bill lets medically distressed debtors discharge student loans in bankruptcy, something almost never possible under current law's strict undue hardship test.
• It removes procedural hurdles like the Chapter 7 means test and mandatory credit counseling for people who qualify as medically distressed debtors.
• Credit reporting agencies would be barred from including these medical bankruptcies on a person's credit report, which could help people rebuild their credit faster after a health-related bankruptcy.