Sen. Elizabeth Warren unveiled a new proposal on Tuesday to overhaul the nation’s bankruptcy laws, reigniting a decades-old feud with 2020 Democratic presidential rival Joe Biden with her push to roll back changes made in the landmark 2005 law.
Under the plan, Warren, a fierce consumer advocate and one of the foremost experts of bankruptcy law in the country, said it would be easier for those who are in debt to obtain relief through bankruptcy and would protect peoples’ property, including their homes and cars, “so they can start from a firm foundation when they start to pick up the pieces and rebuild their financial lives.”
Its release — just 27 days before the Iowa caucuses kick off the presidential primary season — takes a veiled swipe at the former vice president for his support of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which Warren vigorously opposed, likely setting up a showdown at the seventh Democratic debate in two weeks.
In 2005, Warren, then a Harvard professor, faced off with then-Sen. Biden over his support for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a law intended to reduce the number of personal bankruptcies filed in the U.S. by making it more difficult to declare Chapter 7. Instead, the 15-year-old law required people making more than their state’s median income to file for Chapter 13 bankruptcy, a longer and costlier process than Chapter 7.
The bill, which was opposed by most Democrats, was sponsored by Republican Sen. Chuck Grassley and eventually signed into law by President George W. Bush.
After the bill passed, bankruptcies dropped by 50 percent — but the number of insolvent people grew by 25 percent, Warren said, directly causing about 800,000 mortgage defaults and 250,000 foreclosures.
“It was terrible for families in need,” Warren wrote in a 12-page plan posted to Medium. “By making it harder for people to discharge their debts and keep current on their house payments, the 2005 bill made the 2008 financial crisis significantly worse.”
In the plan, Warren said she’d scrap several provisions of the 2005 bill, including eliminating the burdensome paperwork that she claims deters individuals from filing for bankruptcy, and imposes the same “onerous” requirements on middle-class Americans as it does on a wealthy real-estate developer. She also called for a rollback of the requirement that Americans seek pre-filing credit counseling.
“Bankruptcy law places certain spending limitations on people while they are in the bankruptcy process,” she wrote. “My plan pares back some of the limitations that place a particular burden on people -- particularly parents with children -- and limit their ability to recover after the bankruptcy process.”
She would also allow student loans to be discharged in bankruptcy. Under current law, declaring bankruptcy does not release individuals from their student loan debt. (Warren proposed a separate plan in 2019 calling for the elimination of up to $50,000 in debt for 95 percent of people who have it).
The RealClearPolitics voting averages show Warren in third place nationally, behind Sen. Bernie Sanders and Biden, the frontrunner. Since October, when she released her sweeping, $20 trillion Medicare-for-all proposal, Warren’s campaign has lost momentum, falling in the polls.