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How Will Joe Biden Reform Bankruptcy?


Now that Joe Biden is President-Elect, it is a good time to consider his plan to reform U.S. bankruptcy laws. This area did not get quite the attention it deserved during the campaign, but Biden did put out a series of reform proposals. Although he might not get any of these passed, it is a good idea to review them just the same. They provide a roadmap for the type of reforms we will see once Democrats control all branches of government. Our Plantation bankruptcy attorney looks closer at the President-elect’s proposals.

Make It Easier to File for Bankruptcy

On his campaign website, Biden endorsed a plan put forward by Senator Elizabeth Warren. The centerpiece of her plan is to eliminate Chapter 7 and Chapter 13 and instead create one bankruptcy for consumers. Currently, Chapter 7 offers almost-immediate relief but debtors must pass a means test to qualify, which is a high bar for some people.

Under a new bankruptcy scheme, a debtor would have different options to address certain debts. Someone could still take a Chapter 7-style bankruptcy, eliminating most debts and surrendering non-exempt property. But other debtors could choose which debts to address through a payment plan.

In theory, this new bankruptcy procedure would be simpler and cheaper, eliminating burdensome paperwork requirements. Warren’s plan would also scrap required credit counseling. For many debtors, however, little would change.

Increase Exemptions

With a Chapter 7, a filer can only keep property that they exempt. Fortunately, Florida has a generous homestead exemption that allows most homeowners to exempt the full value of the home. However, people might still lose their cars, which they need to get to work or school. Under Biden’s proposed changes, it would be easier for filers to keep their vehicle.

Make Chapter 7 More Affordable

One disadvantage of Chapter 7 is that filers need to pay their attorney upfront. If they don’t, then their debt is actually discharged as a result of the bankruptcy. Biden’s plan would reduce the costs of filing fees and allow filers to pay their attorneys whenever it is convenient, even after filing.

Allow Student Loans to Be Discharged

This is a big piece of any bankruptcy reform. Consumers hold nearly $1.5 trillion in student loan debt, and it is difficult to get these loans discharged in bankruptcy. Generally, consumers must show that paying their student loans constitutes an undue burden and that they cannot maintain a decent standard of living because of the debt.

Biden has promised to make student loans dischargeable, just like any other unsecured debt. This change would be separate from any cancellation of student loans, which Biden also discussed as a candidate. For example, a debtor might have $50,000 in student loans, along with $15,000 in credit card debt. By filing for chapter 7 relief, he or she could eliminate the full $65,000 in combined debt without any special showing of undue burden.

Discuss Bankruptcy Options Today

With Republicans poised to hold onto the Senate, the prospect of immediate change seems dim. However, we can happily discuss how bankruptcy can help you today by looking over your debts and assets. Contact Nowack & Olson to schedule a free consultation at 888-813-4737.



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