Warren takes aim at Biden with plan to bolster bankruptcy rights

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Elizabeth Warren rolled out a plan Tuesday to restore bankruptcy protections repealed in a 2005 law championed by Joe Biden, taking an implicit shot at the Democratic presidential front-runner just before the first nominating contests next month.

The 2005 law raised eligibility requirements and financial costs for Americans to file for personal bankruptcy, a last resort for many to eliminate debt. Warren’s proposal would eliminate obstacles erected by that measure and allow Americans to clear out student debt in bankruptcy.

Her plan would also allow people to protect their homes and cars in the process.

The battle over the bankruptcy measure is part of a longstanding struggle within the Democratic Party between a business-friendly faction and a populist wing hungry for confrontation with Wall Street. In 2005, Biden, then a U.S. senator from Delaware, clashed with Warren, a Harvard law professor whose specialty was bankruptcy and who waged an unsuccessful campaign to thwart the legislation, which was enacted by President George W. Bush.

“I lost that fight in 2005, and working families paid the price,” Warren wrote in her policy paper, saying that the law allowed banks to squeeze struggling Americans to bolster their profits.

Her new plan, she said, would “repeal the harmful provisions in the 2005 bankruptcy bill and overhaul consumer bankruptcy rules in this country to give Americans a better chance of getting back on their feet.”

Although she doesn’t mention his name, Warren’s message in the policy paper is that Biden helped break the bankruptcy system and that she is trying to fix it. She cites the Consumer Financial Protection Bureau, an agency she helped create in 2009 before becoming a U.S. senator from Massachusetts.

Warren has previously accused Biden and other proponents of the bankruptcy measure of siding with banks and credit card companies, which have a major presence in Delaware, over cash-strapped Americans.

Warren said that if elected president, she would create a single bankruptcy system that would be available to all consumers. It would replace the two main types of personal bankruptcy that are available now and that she says are flawed: Chapter 7, under which individuals have to surrender their property, and Chapter 13 which requires debtors to enroll in multiyear repayments.

Instead, Warren would offer a “menu of options” that she says would help cater to the needs of each case, including surrendering property or choosing to enroll in a payment plan.

“The 2005 bill imposed the same onerous paperwork requirements on a middle-class American filing bankruptcy that it did on a wealthy real-estate developer,” Warren said. “My plan would make the bankruptcy system simple, cheap, fast, and flexible.”

Warren would also reverse the provision of the 2005 bill that requires people to seek prefiling credit counseling and would waive filling fees for anyone below the poverty line.

She vowed to loosen the spending limitations on people who are in a bankruptcy process and make it easier to get relief from student loan debts in bankruptcy by making them dischargeable like other consumer debts. Her plan would modify the law to allow people undergoing bankruptcy to modify their mortgages, which is mostly prohibited.

Warren vowed to increase accountability for creditors and crack down on bankruptcy practices that the wealthy and big corporations use to shield their assets. Her plan would ensure that assets placed in self-settled trusts and revocable trusts are not exempt from creditors’ claims in bankruptcy.

She would stop companies from collecting debts that are no longer valid and would allow people to sue creditors who try to collect debts that have already been discharged.

Reinforcing image

In national polls, Biden has a consistent lead and Warren places third, behind Sen. Bernie Sanders of Vermont. But Biden is weaker in the early states of Iowa and New Hampshire, where Warren is hoping for a strong finish that bolsters her prospects in subsequent states.

Sanders also took aim at the former vice president over the 2005 legislation, saying Monday evening on CNN that “Joe Biden pushed a bankruptcy bill which has caused enormous financial problems for working families.”

The new Warren plan reinforces her image as a progressive candidate who’s pitching herself as an anti-Wall Street crusader who sweats the details of policy. In her policy paper, she wrote that even with the Consumer Financial Protection Bureau, “there are still serious problems with our bankruptcy laws today, thanks in large part to that bad 2005 bill.”

Bloomberg News
Election 2020 Bankruptcy Elizabeth Warren Joe Biden