By Daniel J. Schulte
MDA Legal Counsel
Published in the January 2006 issue of the Journal
News of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (which took effect Oct. 17, 2005) led to thousands of individual bankruptcy filings. This flood of filings has resulted in many questions regarding patient bankruptcies. Despite this new bankruptcy law, the answers to the most frequently asked questions regarding bankruptcy generally remain the same and are addressed in the following updated article, which was originally written by Richard D. Weber. It is assumed that there is no insurance coverage in each case.
Question: I overheard my patient telling a friend that she may be filing for bankruptcy. I’ve treatment-planned her for a huge implant procedure, which we had scheduled to do. I am very reluctant to proceed given what I overheard. What choices do I have?
Answer: This column cannot cover all the complexities and nuances of the Federal Bankruptcy Law. It is necessary, however, to understand some general principles. The payment of any invoice by the patient within 90 days prior to the petition for bankruptcy is called a "preference," and the payment would have to be returned to the bankrupt’s estate. Any payment into an escrow or trust account prior to bankruptcy to secure payment for the services to be performed by you in the future would continue to be an asset of the bankrupt patient and returned to the bankrupt’s estate. Any payment for services rendered after the filing of the petition for bankruptcy would not be deemed a preference, and the payment of any funds subsequent to the filing of the petition for bankruptcy to be used as security for the payment of post-bankruptcy petition services could be used as security.
With these general principles in mind, it would be wise to carefully consider your options before commencing treatment if you are satisfied that the patient is likely to file for bankruptcy. You could wait until the petition for bankruptcy is filed and then work out a prepayment arrangement with the patient. Prepayment either before or after the bankruptcy petition by a third party, either directly or as security, could also work. If the patient has a credit card (which is possible prior to bankruptcy but not after bankruptcy), prepayment by the patient could be made with a credit card without concern for a preference. Another option would be to obtain a guarantee from a solvent third party, but this option would only be as good as the solvency of the guarantor and there would be an issue as to whether there was legal consideration for the guarantee. Consideration would likely be found if the guarantee was given by a close relative of the patient, such as a spouse, parent or child. You obviously have other choices of either performing the treatment on the hope that the patient will not file for bankruptcy, or electing not to perform the treatment so as to avoid the risk of nonpayment. These choices are obvious and need no further comment.
Question: I have begun orthodontic treatment on a minor and the parent has filed for bankruptcy. My entire fee for the orthodontic treatment has been discharged by the court. Can I bill the parent for any treatment rendered after the date of the bankruptcy? Do I have to finish this orthodontic case?
Answer: If termination of the treatment would jeopardize the patient’s oral health, you should continue the treatment. Failure to do otherwise could be deemed abandonment. If termination would not jeopardize the patient’s oral health, you may discontinue treatment so long as adequate notice and an opportunity to obtain the services of another dentist is given. You can bill the patient for treatment rendered after the date of bankruptcy, but the ability of the minor’s bankrupt parent to pay would be questionable. Prepayment after the bankruptcy petition is filed for future treatment is an option, and the use of a credit card and the possibility of a third party guarantee could also be explored, subject to the questions of consideration and solvency of the guarantor.
Question: Will I receive a specific court document addressed to me, indicating that my patient has filed for bankruptcy, or do I just take their word? What type of documentation should I look for?
Answer: If you are a creditor at the time the patient files for bankruptcy, the patient is obligated to list your receivable in order to discharge the debt. As a listed creditor, you will receive a Proof of Claim form from the court. You will be required to fill out that form with your claim information and file it with the court within a certain period of time. Creditors are paid a portion of their claims if there are assets of the bankrupt’s estate. Dentists would likely be general unsecured creditors and would stand behind secured creditors who are paid first. Typically, general unsecured creditors are paid little if anything in personal bankruptcies.
Question: What rights do I have if my patient has filed for bankruptcy and wants to continue to be a patient of record in my office? Can I dismiss the patient due to filing bankruptcy and my having to write off a large amount? Do I have to continue to be this patient’s dentist, even for emergencies, until he finds a new dentist?
Answer: If the dismissal would jeopardize the patient’s health, you should not discontinue treatment without adequate notice to the patient and an opportunity to obtain the services of another dentist. This is ethically and legally required. Other than adhering to this rule against patient abandonment, you may dismiss a patient for any reason, with two exceptions. First, a dentist may not dismiss a patient for a reason protected under the federal or state discrimination laws. Second, a dentist may be precluded from dismissing a patient if it would violate a contract, such as a participation agreement with a managed care plan.
Question: I have heard that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will make it more difficult for an individual to file for bankruptcy. Is this good news or bad news when it comes to my patient collections?
Answer: Generally, it should be good news. This new law went into effect on Oct. 17, 2005. It contains a series of revisions to the bankruptcy code. These revisions tend to make it more difficult for a patient to file for Chapter 7 (liquidation) bankruptcy in which patient’s non-exempt assets are sold and little or nothing is paid to unsecured creditors (e.g., dentists). Instead, now that this new law has taken effect more patients will be forced to file for reorganization under Chapter 13 of the bankruptcy code. In Chapter 13 cases, the patient must come up with a plan of reorganization to pay part or all of his/her debts during a relatively short period of time (the maximum is five years). Under the new law, if a patient’s income is greater than the median income for the state in which the patient resides and the patient can afford to pay 25 percent of his/her unsecured debt over five years, the patient will be forced to do so under a Chapter 13 plan. In addition, under the new law, before an individual can file under either Chapter 7 (a liquidation) or Chapter 13 (a reorganization), the patient must meet with a credit counselor in the six months prior to filing. The combination of pre-bankruptcy credit counseling and greater requirements to qualify for liquidation should translate into fewer bankruptcy filings and higher collections from patients.
Send questions for publication to "Dentistry and the Law," Journal of the Michigan Dental Association, 230 N. Washington Square, Suite 208, Lansing, MI 48933-1312. Names of letter-writers remain confidential.