Before she joined the Senate, Elizabeth Warren was a law professor and taught courses related to bankruptcy. When Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Senator Warren opposed it.
BAPCPA introduced the “Means Test,” making it more difficult to file for bankruptcy.
BAPCPA was introduced because of a general consensus, albeit a false one, that most people filing for bankruptcy were “abusing” the system or taking advantage of it. After 20 years of practicing bankruptcy law, I can tell you that is 100% false! Not only based on my experience and thousands of clients, but there is no data that supports that belief.
As a result, Senator Warren has been pushing for bankruptcy reform for years, and I agree.
I always explain to my clients how the current bankruptcy laws make no sense. I could have a client earning $100,000 a year qualify for bankruptcy, but a client making $45,000 a year doesn’t. I’ve had clients with homes valued at $500,000 qualify, but clients living in a run-down trailer not qualify.
Senator Warren’s Bankruptcy Plan
Senator Warren’s plan is to make filing for bankruptcy easier. In 2005, there was a sudden drop in bankruptcy filings, however, fact is many people filed for bankruptcy before the law changed. I had clients file for bankruptcy that never had any intention of doing so, but did so because of the law change.
However, after the law passed, since many people, including lawyers believed their clients didn’t qualify since the law was so confusing, as a result, came the mortgage foreclosure crisis.
Senator Warren as a law professor studied the data on why people file for bankruptcy, and she concluded what I’ve argued all along: 90% of people end up in bankruptcy because of a job loss, a medical problem, or a family breakup. Like I said, abuse is not the real reason. It never has been.
What Senator Warren Proposes
Senator Warren wants to eliminate the “Means Test.”
Warren’s plan also includes getting rid of Chapter 13 which is a 3 to 5-year payment plan with the bankruptcy court if you don’t qualify for a Chapter 7 bankruptcy.
Warren’s plan is to turn over non-exempt property in exchange for having debts “discharged.” It should be noted that the fail rate of Chapter 13’s are very high. Some studies suggest as much as 90% of debtors don’t complete their Chapter 13. This results in being in a worse position than when you started.
Senator Warren would also make it easier to keep your car and home. Note each state is different when it comes to keeping your home. I’ve read stories of people who have filed for bankruptcy and lost their home because their state didn’t really have laws protecting them.
Part of filing for bankruptcy includes credit counseling classes clients that are required to take. Of course, this costs money and Senator Warren wants to get rid of that requirement. I AGREE.
I’ve yet to have one client tell me they learned anything from taking those courses.
Senator Warren also wants to include student loans in bankruptcy. I also AGREE. Student loans are in the trillions, only behind mortgages. I’ve written extensively on the issue of student loans. There is no reason why student loans should not be treated as consumer debt as well.
If you have any questions or are thinking of filing for a Chapter 7 bankruptcy, schedule your free consultation with Attorney Alex Hernandez.
Representing clients in the areas of Chapter 7 Bankruptcy, Family Law/Divorce, and car and motorcycle accidents for 20 years.
(904) 712-5565 or (305)-688-LAWS (5297).
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