Medical Bankruptcy Fairness Act of 2026

This bill proposes amendments to title 11 of the United States Code, aiming to establish specific bankruptcy protections for individuals experiencing financial distress due to medical reasons. It introduces new definitions for "medical debt," encompassing costs related to diagnosis, treatment, or prevention of illness, and for a "medically distressed debtor." A debtor qualifies as medically distressed if they incurred or paid substantial out-of-pocket medical debt (exceeding 10 percent of adjusted gross income or $10,000), lost domestic support due to a medical issue, or experienced an employment status change resulting in reduced income due to their own illness, caring for a family member, or a public health crisis. The legislation offers several key protections for these debtors, including the option to claim a significantly increased homestead exemption of up to $250,000. Medically distressed debtors are also exempted from the means test in Chapter 7 bankruptcy cases and certain disposable income requirements for Chapter 13 plan confirmation. Additionally, the bill waives the mandatory credit counseling requirement, facilitates the discharge of student loan debt under an undue hardship standard, and crucially, prevents information related to these bankruptcies from appearing on consumer credit reports . Debtors seeking these protections must file a statement attesting that their medical expenses were not incurred solely to qualify for this status.