AMARILLO, TX – It is not uncommon for a patient to file bankruptcy. When this occurs, it will likely be either a Chapter 7 liquidation or a Chapter 13 debt consolidation. The patient files the Bankruptcy Petition in the U.S. Bankruptcy Court serving the geographical area in which the patient resides.

A Chapter 7 is the classic liquidation. A “trustee” is appointed. The trustee is often a local attorney hired by the Court. The trustee (i) takes possession (constructive and/or actual) of the patient’s non-exempt assets, (ii) liquidates the non-exempt assets, and (iii) distributes the money, on a pro rata basis, to the patient’s creditors. In most states, the following assets are exempt (i.e., the trustee cannot touch them): (i) homestead, (ii) at least one vehicle, (iii) retirement, and (iv) a large portion of the patient’s personal property (furniture, etc.).

When a DME supplier receives notice of a Chapter 7 filing, it needs to cease collection efforts. The supplier needs to file a Proof of Claim with the Court. The supplier can do this on its own or it can hire an attorney to do so.

• If the DME supplier sold the product to the patient, and assuming that the supplier does not have a lien against the product, there is nothing else for the supplier to do. The supplier will receive notices from the Court and Trustee regarding the status of the bankruptcy case. If the Trustee is able to liquidate non-exempt assets and make a distribution to creditors, the DME supplier will receive a percentage of what is owed to it by the patient.
• If the supplier sold the product to the patient, and in the event the supplier has a lien against the product, the supplier needs to hire an attorney to file a pleading with the Court to either (i) recover the product or (ii) recover the cash value of the product.
• If the DME supplier leased the product to the patient, the supplier needs to hire an attorney to file a pleading with the Court to (i) require the patient to make the lease payments to the supplier or (ii) recover the product.

A Chapter 13 often occurs when the patient has too much consumer debt (credit cards, vehicle loans, etc.) but desires to pay as much to his/her creditors as possible over a period of time. The patient will file a Chapter 13 “Plan” that sets out (i) how the patient intends to pay his/her creditors and (ii) how much each creditor can expect to receive under the Plan. The creditors will have the right to accept or reject the Plan. Often, as a result of negotiations between the patient’s attorney and the creditors, the Plan will be accepted by the creditors…and the Plan will be approved by the Court.

• When the DME supplier receives notice of a Chapter 13 filing, it needs to (i) cease its collection efforts and (ii) file a Proof of Claim.
• There is a Trustee appointed for a Chapter 13. However, the Trustee will not be a local attorney (as in a Chapter 7); rather, the Trustee will be an employee of the Court. The Chapter 13 Trustee may or may not be an attorney. The Chapter 13 Trustee sees to it that the case moves forward without delay.
• If the DME supplier sold the product to the patient (and does not have a lien against the product), then the supplier will need to see how the patient proposes to treat the supplier under the Plan. The DME supplier can accept or reject the Plan.
• If the supplier sold the product to the patient (and has a lien against the product), the supplier will need to see how the patient proposes to treat the supplier under the Plan. The DME supplier can accept or reject the Plan. If the supplier rejects the Plan, it can take those steps described above pertaining to a Chapter 7.
• If the DME supplier leased the product to the patient, the supplier will need to see how the patient proposes to treat the supplier under the Plan. The supplier can accept or reject the Plan. If the supplier rejects the Plan, it can take those steps described above pertaining to a Chapter 7.

There are other “Chapters” under the Bankruptcy Code (e.g., Chapter 11 reorganization and Chapter 12 farm reorganization), but it is highly unlikely that the DME supplier will have to deal with these other Chapters.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].