Closure of Bankruptcy Cases and Treatment of Overpayment Reporting

140.8.4 - Closure of Bankruptcy Cases and Treatment of Overpayment Reporting Systems at End of Bankruptcy (Rev. 13825; Issued: 06-11-26; Effective: 07-13-26; Implementation: 07-13-26) After a bankruptcy case is fully administered and the court discharges the trustee (if applicable), the bankruptcy court closes the case. Chapter 11 bankruptcy usually ends with a confirmed reorganization plan, beginning on the plan's "effective date", while Chapter 7 concludes when the Trustee dissolves the corporation, ends operations, and distributes assets to creditors. The CMS Office or CMS Counsel will provide specific guidance to the Contractor on required actions and resolving any remaining unpaid debts when a bankruptcy case closes. When a bankruptcy case closes, whether Chapter 11, or a proceeding under some other chapter of the bankruptcy code, the Contractor must modify its financial records to reflect the outcome of the bankruptcy. In general, amounts that the bankruptcy court does not require the provider to repay are considered "discharged," and Medicare must release the provider from liability for the debt. All the Contractors debt information must incorporate the bankruptcy outcome by writing off or resuming normal collection of debts. The Contractors are responsible to maintain detailed support for all revisions, as well as for any extended repayment arrangements. Detailed documentation related to principal, interest charges, immediate recoupment and extended repayment plans without interest are especially important in global settlement adjustments which are common in some bankruptcy situations. These amounts may need to be modified based on the global settlement. In global settlements which may cut across providers in a chain, existing amounts may be removed from the provider listing and the new amount(s) substituted in accordance with the bankruptcy documents. This will require close coordination among the CMS Counsel, the CMS Office, CO and affected Contractor staff. Coordination and immediate action are especially important if it is discovered that a bankruptcy discharge for a provider has occurred in a previously unknown bankruptcy proceeding. Occasionally, the court dismisses a bankruptcy because the debtor does not qualify for bankruptcy or for some other reason. When there is a dismissal, with the advice of CMS Counsel, the CMS Office and Contractor can usually treat the case as if the bankruptcy had never occurred and continue the normal recovery process, which might include an "intent to refer" letter and subsequent transfer to Treasury. Contractors shall ensure that their internal processing systems and financial reports no longer reflect the case as one under bankruptcy, and interest should be reassessed upon termination of the case. Always contact the CMS Office or CMS Counsel for guidance on the closure of a bankruptcy. There is no standard formula for closing a bankruptcy, as it all depends upon the nature of the proceedings and the court orders in the case. The closure could be preceded by a successful reorganization under Chapter 11, a conversion to Chapter 7, or the result of a settlement agreement or stipulation. In all cases, obtain approval from the CMS Office or CMS Counsel before closing the bankruptcy. The servicing CMS Office instructs the Contractor on how to resolve unpaid debts after a bankruptcy case closes. If the court terminates the bankruptcy case, without a discharge entered, the CMS Office may direct the Contractor to resume collection of overpayments, including referring unpaid debts to Treasury. For Treasury-eligible debts, the Contractor shall update the AR Status to ‘RESUME-COL- BNK-TERMINATED’ on transactions emerging from bankruptcy. Note: This status code informs the Treasury to override the bankruptcy status and continue the normal collection process. If the court concludes the bankruptcy case, with a discharge entered, the CMS Office will review the debts to determine if the discharge is applicable. If the discharge applies, either the Group Director or Deputy Group Director for the Financial Operations & Oversight Group will have the authority to terminate collection activity for cases that qualify to be written off at their respective level. Contractors shall update STAR, for providers classified under Part A, to reflect the bankruptcy termination date. This ensures the continuation of the standard cost report settlement process without requiring manual referral of settlement letters to the CMS Office, unless otherwise directed by specific instructions from the CMS Office to halt the auditing of cost reports.