Continuing a decades-long effort to change the nation’s bankruptcy system, Sen. Elizabeth Warren plans to propose legislation Wednesday aimed at making the process less costly and less complicated for the hundreds of thousands of people who seek debt relief each year sanctioned by the court.
“People typically file for bankruptcy for one of three reasons: a job loss, a medical problem or a family breakdown – and when they do, they face an expensive and complicated system,” said the Democrat in a statement reintroducing the bill, known as the Consumer Bankruptcy Reform Act.
“My bill would simplify and modernize the consumer bankruptcy system to make it easier and less expensive for people to obtain relief,” Warren added.
Bankruptcies are increasing
The measurement comes as personal bankruptcies compared this year to 2023 levels. More than 400,000 Americans have filed for bankruptcy in 2024, although that figure is well below their pre-pandemic average, which was around 750,000 personal bankruptcy filings per year .
Warren said her bill would help families “avoid eviction, keep their homes and cars, and pay local government fines.” It would also create a repayment plan for unsecured debt, including student loans, and eliminate a restriction that prohibits people from getting rid of their private and public student debt in bankruptcy, like other types of student loans. consumption.
Rep. Nadler, a New York Democrat, and Rep. Pramila Jayapal, a Washington Democrat, are co-leading a version of the bill in the House, while Rhode Island Democrat Sheldon Whitehouse will co-sponsor the measure in the Senate . The bill was endorsed by a wide range of groups, including the AFL-CIO, labor union, and consumer advocacy groups Public Citizen and National Consumer Law Center.
“Large corporate debtors continue to reap the rewards of our broken bankruptcy system, while Rhode Islanders facing daily financial hardships struggle to obtain basic relief. personal debt,” Whitehouse said in a statement.
Among other things, Warren’s proposal would provide two paths for individuals to file for bankruptcy:
- Release for non-payment. For low-income filers, this option would eliminate unsecured debts other than child support or debts incurred through fraud.
- Debt-specific plans. This would allow individuals to settle debts specific to their financial situation, suspending debt collection efforts while the filer remains current on their loans.
The change would be welcome, according to supporters, who say current bankruptcy rules can steer people in the wrong direction.
It costs about $1,500 to file Chapter 7, and most attorneys require their fees to be paid up front. Chapter 7 is a liquidation bankruptcy, in which the filer’s nonexempt property and assets – property not protected by bankruptcy – are turned over to a trustee and the debt is discharged in three to six months.
In Chapter 13 bankruptcy, payments can be spread out, but the overall costs for filers are significantly higher, averaging $4,500. According to one study, only about a third of people who file for Chapter 13 make it through to the end and have their debts discharged.
