Continuing a decades-long effort to overhaul the nation's bankruptcy system, Senator Elizabeth Warren plans to propose legislation on Wednesday aimed at making the process less expensive and complicated for the hundreds of thousands of individuals who are Who want relief from debt sanctioned by the court every year.
“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're faced with an expensive and complicated process,” the Massachusetts Democrat said in a statement. The system has to cope.” The bill, known as the “Consumer Bankruptcy Reform Act.”
“My bill would simplify and modernize the consumer bankruptcy system, making it easier and less expensive for people to seek relief,” Warren said.
Bankruptcies are increasing
comes as a solution personal bankruptcy This year's level was compared to 2023. More than 400,000 Americans are projected to file for bankruptcy in 2024, though that figure is significantly lower than their pre-pandemic average of about 750,000 individual bankruptcy filings per year.
Warren said her bill would help families “avoid eviction, keep homes and cars, and avoid local government fines.” It would also create a repayment plan for unsecured debt, including student loans, as well as eliminate the restriction that prevents people from discharging private and public student loans in bankruptcy like other types of consumer loans.
Representative Nadler, Democrat of New York, and Representative Pramila Jayapal, Democrat of Washington, are co-leading the House version of the bill, while Rhode Island Democrat Sheldon Whitehouse will sponsor the measure in the Senate. The bill is supported by several groups, including the AFL-CIO, a labor union, and consumer advocacy group Public Citizen and the National Consumer Law Center.
“Large corporate debtors are taking advantage of our broken bankruptcy system, while everyday Rhode Islanders are facing financial hardship and struggling to get basic relief. I am pleased to support this bill that Makes the consumer bankruptcy system fairer and easier for people with crushing personal debts,” Whitehouse said in a statement.
Among other things, Warren's proposal would provide two pathways for individuals to file for bankruptcy:
- No-payment discharge. For low-income filers, this option will erase unsecured debt other than child support or debt incurred by fraud.
- Loan-specific schemes. This will help individuals resolve specific debts as per their financial situation, thereby preventing debt collection efforts while the filer remains current on the debts.
The change would be welcome, according to advocates, who say the current bankruptcy rules could rub people in the wrong direction.
Filing Chapter 7 costs about $1,500, and most attorneys require you to pay their fees upfront. Chapter 7 is a liquidation bankruptcy, where the filer's non-exempt property and assets – property not protected by the bankruptcy – are turned over to a trustee, and debts are repaid in three to six months.
With Chapter 13 bankruptcy, payouts can be spread out, but the total cost for filers is significantly higher, averaging $4,500. Research shows that only about one-third of people who file Chapter 13 make it to the end and get their debts paid off.