Continuing a decades-long effort to overhaul the nation’s bankruptcy system, Sen. Elizabeth Warren plans to introduce legislation Wednesday aimed at making the process less costly and cumbersome for the hundreds of thousands of individuals who seek relief each year of the debt sanctioned by the courts.
“People typically file for bankruptcy for one of three reasons: job loss, medical problem or family breakup, and when they do, they’re faced with an expensive and complicated system,” the Massachusetts Democrat said in a communicated when re-entering. 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 get relief,” Warren added.
Bankruptcies are growing
The measure comes as personal bankruptcies compared this year to levels in 2023. More than 400,000 Americans have filed for bankruptcy in 2024, though that number is well below its pre-pandemic average of about 750,000 personal bankruptcy filings in the 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, as well as remove a restriction that prohibits people from discharging private and public student debt in bankruptcy, like other types of consumer loans.
Rep. Nadler, D-New York, and Rep. Pramila Jayapal, D-Washington, are co-sponsoring a version of the bill in the House, while Rhode Island Democrat Sheldon Whitehouse will co-sponsor the measure in the Senate. The bill has been endorsed by a wide range of groups, including the AFL-CIO, a labor union and consumer advocacy groups Public Citizen and the National Consumer Law Center.
“Big corporate debtors continue to reap the rewards of our broken bankrupt system, while Rhode Islanders facing financial hardship struggle to get basic relief. I am pleased to support this bill that makes the system of consumer bankruptcy is fairer and more accessible to those facing crushing personal debt,” Whitehouse said in a statement.
Among other things, Warren’s proposal would provide two avenues for individuals to file for bankruptcy:
- Download without payment. For low-income filers, this option would eliminate unsecured debts other than child support or debts incurred through fraud.
- Specific debt plans. This would allow individuals to resolve debts specific to their financial situation, pausing stalled debt collection efforts while the filer stays current on the loans.
The change would be welcome, according to advocates, who say current bankruptcy rules can steer people in the wrong direction.
Filing for Chapter 7 costs about $1,500, and most attorneys require their fees to be paid in advance. Chapter 7 is a liquidation bankruptcy, where the filer’s assets and non-exempt assets, possessions not protected by the bankruptcy, are turned over to a trustee and the debt is discharged within three to six months.
With a Chapter 13 bankruptcy, payments can be spread out, but overall costs for filers are significantly higher, averaging $4,500. Only a third of people who file for Chapter 13 make it all the way and have their debts discharged, research shows.