With elections around the corner, presidential candidates are relying on their plans and initiatives to encourage their supporters to elect them into office. One topic that Democratic candidate Elizabeth Warren is hoping to tackle is the current bankruptcy process.While many often assume people go broke and file for bankruptcy because of handling their finances irresponsibly, Warren has spent the majority of her career researching and understanding why people resort to filing for bankruptcy. Previously, Senator Warren taught bankruptcy law at Harvard Law School. In addition, she worked strongly to oppose the 2005 bankruptcy bill, showing that making changes to the bankruptcy process has been on her agenda for quite some time.The 2005 bill was pushed by the banking industry and made it more difficult to get out of credit card debt. To combat issues surrounding bankruptcy and make it targeted more towards filers, Warren has proposed a simpler plan that will ease the process and allow for easier recovery, in addition to eliminating any special treatment that some may receive.
MODIFICATIONS FOR FILING
One of Warren’s biggest issues with the current bankruptcy process is that it is far too complicated and makes it difficult for people, especially middle-class Americans, to seek relief. The proposed planaims to be more flexible, giving individuals more options that may be better suited for their needs instead of forcing them to choose between Chapter 7 or Chapter 13. With Warren’s plan, Chapter 7 and Chapter 13 would be eliminated and instead there would be a single system for all. The process would remain the same by requiring individuals to still list all debts, assets, income, etc., as well as preventing creditors from collecting against debtors outside of the court. Similar to Chapter 7, individuals must surrender all non-exempt property in order for any unpaid debts to be discharged. From here, filers would have a “menu” of options. This will allow people to target specific financial issues without involving all assets and property. Certain debts would still remain non-dischargeable and creditors would have the opportunity to dismiss or object any discharges, making more difficult forindividualsfor individuals to abuse the system.
In order to simplify the process, Warren’s plan seeks to make filing for bankruptcy “cheaper and quicker.” By providing more flexible options, costs would be reduced. While Chapter 7 tends to be a cheaper alternative to Chapter 13, it requires paying the court up front and having the individual’s assets be sold by the trustee. Chapter 13 allows for payments to be made over time and makes it possible to stop any foreclosure proceedings from occurring. By eliminating the choice between Chapter 7 and Chapter 13, costs will no longer differ depending the route you choose and allow for attorney payments to be made over time.
Currently, the required paperwork tends to make the process more difficult and time consuming. Under Warren’s plan, paperwork will become less lengthy. Currently, filers are required to list all property and assets individually by category. If any information reported is inaccurate, more issues can arise. To simplify this, Warren plans to replace this with a lump-sum personal property exemptionto summarize any assets owned by the household instead of the amount owned by the filer. Costs will also be decreased by waiving filing fees for individuals below the poverty level. For those above the poverty line, fees will slowly be phased in depending onincome.
DECREASING COSTS
With simpler paperwork, Warren plans to cut costs is by reducing the amount of work needed by an attorney. The 2005 bill placed more requirements on bankruptcy attorneys. Currently, bankruptcy attorneys are needed to verify all provided information and ensure that no fraudulent information is given. The American Bar Association opposed these rules being enacted because attorneys were forced to be liable to any mistakes made by clients. Attorneys became responsible for monitoring whether individuals were making their payments as scheduled and restrictions were placed regarding any advice they gave their client before beginning the filing process, making it difficult to effectively represent clients. Warren’s idea is to eliminate these requirements placed on attorneys and implement disciplinary panels into local bankruptcy courts, easing the work of attorneys while also costing less for filers.
One of the biggest reasons for entering bankruptcy is because of how difficult it is to pay off student loan debt. 45 million Americans are currently faced with a total of $1.5 trillion in student loans, reaching an all-time high in 2019. Warrenhopes to tackle this issue by canceling up to $50,000 in student loan debt for 95% of the affected population. By doing so, Warren hopes not only help families seek relief, but also boost the economy. Due to rising costs, people are making major life choices based around their student loans. For example, many are choosing to not have children because their loans are preventing them from financially doing so. Warren explains that by forgiving student loan debt, more individuals will choose to start a family, which will urge them to create more businesses and buy more houses. This would allow for the economy to grow through the process.
EQUAL OPPORTUNITIES FOR ALL
One of Warren’s biggest complaints about the current bankruptcy bill is that the system effects everyone differently. Warren notes that women and people of color are more likely to file for bankruptcy, but the wealth gap makes it more difficult for them to recover. Due to gender inequality in the workforce, women earn less than men. Because of this, it takes a longer time for them to pay off loans which increases the amount of interest they are being charged. Warren’s plan will provide additional protection for individuals receiving alimony or child support. This will be beneficial to single mothers because they will be able to continue supporting their families. Currently, filers are not required to disclose their race, gender or age. Warren believes that this information should be noted in order to provide us with data that is representative of the population filing for bankruptcy, allowing changes to be made based on what is being reported.
Wealthy individuals tend to be favored when filing under the current system due to loopholes. Throughout the country, rules vary state-by-state. Certain states, such as Delaware, give individuals the option to include their assets in the form of trusts. Known as the “millionaire’s loophole,” wealthier individuals tend to file for bankruptcy and gain relief, but still hold onto their property. To combat this issue trusts will no longer be exempt. The current “homestead exemption,” which allows for a certain amount of home equity value to be protected, also exhibits inequality. This amount provided varies state to state. When filing, many wealthy individuals abuse this loophole by moving to states that allow for larger amounts. To prevent this, Warren plans to modify the current “homestead exemption” by creating a uniform plan that is set at a maximum of half of the Federal Housing Finance Agency’s loan limit. This will allow limits to be set based on the county of residence, preventing people from receiving too little or too much.
In addition, the plan includes combatting against fraud. Under the current plan, when filers include fraudulent information in their paperwork, they are still entitled to keeping certain property exempt. Instead, the court will enforce that if inaccurate information is reported, it cannot be considered exempt property. Warren also aims to strengthen the “fraudulent transfer” law, which provides filers with the opportunity to transfer money to exempt trusts in order to avoid making payments. By closing these loopholes, the plan will prevent companies from collecting on expired debts and give filers the opportunity to sue if this is violated. Any follow up disputes must be resolved in court instead of mandatory arbitration. Arbitration allows for involved parties to dispute the court’s decision outside of the courtroom, often making it easier for creditors to go after filers.
LIFE AFTER BANKRUPTCY
Warren hopes to make life after bankruptcy easier for individuals and their families.Warren’s proposed plan is meant to ease the transition for filers getting back on their feet once their bankruptcy case has concluded. While filing for bankruptcy is meant to provide relief, it can make it difficult for individuals to continue providing for their families. The court places spending limitations on filers. Warren’s plan aims to not set such large limitations on individuals with children, making it possible for them to continue taking steps towards recovery.
Another big issue to those recovering from bankruptcy is struggling to pay rent on their properties. Unlike the 2005 bill, Warren’s plan would allow for enough of a spending budget that will prevent families from facing eviction. Individuals will also have the opportunity to build a repayment plan which will allow them to set aside money for select needs.This would provide protection for assets, such as homes and cars and provide families with a proper foundation needed to successfully rebuild.
When it comes to maintaining mortgages, Warren encourages a system that will result in a win-win scenario for all involved properties. Unlike the 2005 bill, filers will be able to make modifications tomortgages as needed. If a property has already began its foreclosure but the owner acknowledges that the filer is making the attempt to make payments, the filer will be able to ask for adjustments to their payment plan. This would reduce interest rates while still allowing owner to get payments. In addition, the neighborhood would avoid seeing a foreclosure, making it a more desirable area. “Zombie” mortgages, or mortgages where lenders start but do not complete the foreclosure, will be eliminated. Homeowners will not be able to force the lender into foreclosure. This will not only decrease the amount of abandoned properties, but also allow filers to have a new start without being liable for property they no longer live in.
When it comes to filing for bankruptcy, Warren believes that the process should not cause you to be in a position that is worse off than before. The system is meant to provide relief and give individuals the opportunity to rebuild.If you are considering filing for bankruptcy relief, please contact Sacramento Bankruptcy Lawyer Pauldeep Bains to discuss your matter.
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