Bankruptcy law changes have been in discussion since 2005. The credit card industry had a hand at the passage of The Bankruptcy Abuse Prevention and Consumer Protection Arc (BAPCPA) in 2005, which not only changed consumer bankruptcies drastically but also made them more difficult and costly for individuals as well as businesses.
In 2011, the American Bankruptcy Institute (ABI) created a commission to explore the overhauling Chapter 11. In 2019, they unveiled recommendations to make bankruptcy more accessible for private individuals and businesses. However, nothing much has happened since then.
On the other hand, Senator Elizabeth Warren has been continuously pursuing bankruptcy reform for two decades. By March, as regular policy meetings between Biden and Warren continued, Biden adopted Warren’s comprehensive proposal, renaming it the Biden Plan for Bankruptcy Reform, ending their conflict over BAPCPA.
Here’s what you should know about the proposed bankruptcy law changes in the Consumer Bankruptcy Reform Act of 2020:
1. Chapters 7 and 13 Will Be Replaced with a New Chapter 10
Under this new law, consumers with debts less than $7.5 million will file under the new Chapter 10 bankruptcy. Those with debts greater than $7.5 million will seek relief under the Chapter 11 bankruptcy.
Individuals who will file a Chapter 10 bankruptcy will need to file a petition and some additional schedules and statements, like those currently filed according to Bankruptcy Code Section 521.
2. The Removal of Credit Counseling
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) required consumers who were filing bankruptcy to participate in a credit counseling course and file a certificate of completion in their bankruptcy cases. With this new reformed law, it eliminates this seemingly capricious credit counseling requirement.
3. It Focuses on the Consumers’ Ability to Pay Rather Than Choices of Expenses
In the current Bankruptcy Code, consumers’ bankruptcy case may be converted into a different one or dismissed as “abusive” if consumers choose to spend their money on “luxury” expenses, like vehicle payments, support payments for adult children, and the likes. But with the new reformed bankruptcy act, it eliminates the analysis of whether consumers are spending their disposable income on acceptable, non-luxury expenses. Rather, it looks into whether the consumer has funds to make a “minimum payment obligation” based on the value of their non-exempt assets and yearly income.
4. Some Consumers Can Receive Immediate Discharges Without Making Any Payments
Rather than the waiting periods consumers must have when filing for Chapter 7 (90 days) and Chapter 13 (3-5 years repayment plan), the reform provides consumers, who have insufficient non-exempt assets and bankruptcy law changes income to trigger a minimum payment obligation, a discharge immediately. However, certain debts under section 523 of the Bankruptcy Code will still be non-dischargeable. At the same time, liens on property will continue to survive under the discharge.
These are just some of the bankruptcy law changes proposed by the Consumer Bankruptcy Reform Act of 2020.
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