The Consumer Bankruptcy Reform Act of 2020 (CBRA)
Coming out ahead of what many experts are declaring will be a wave of bankruptcies in the horizon, Sen. Elizabeth Warren [D-Mass.] and Rep. Jerry Nadler [D-N.Y.], the chairman of the House Judiciary Committee, introduced a bill in Congress last week that would overhaul the consumer bankruptcy process. In their press release, they spell out their attempt to “simplify and modernize” the process. The New Chapter “X” or 10, as it is properly known, bankruptcy proposes to eliminate chapters 7 and 13 in their entirety.
Read the Bill in its Entirety Here
Whereas consumer bankruptcy has long existed in two primary flavors—liquidations (chapter 7) and repayment plans (chapter 13), the CBRA proposes a single chapter structure, a new chapter “10” or “X” as it used to be nicknamed. Under the CBRA, individual debtors would no longer be eligible for chapter 7, and chapter 13 would be repealed in its entirety. All individual debtors with debts of less than $7.5 million would be eligible for chapter 10; those with larger debts would have to file for 11 (or 12 if they qualify).
“Our bankruptcy system too often fails to provide financially struggling individuals and families the relief they desperately need,” said Senator Warren. “The Consumer Bankruptcy Reform Act of 2020 will take long overdue steps to make it easier and less expensive for financially-strapped families and individuals to obtain meaningful bankruptcy relief and give Americans a better chance to get back on their feet.”
Both the Consumer Bankruptcy Reform Act of 2020, S.4991 in the Senate and H.R. 8902 in the House have been endorsed by almost two dozen consumer groups and unions, including the National Consumer Law Center (NCLC), the National Association of Consumer Advocates, and the Service Employees International Union (SEIU).
The bankruptcy system is supposed to be a lifeline of last resort; instead, individuals and families forced into bankruptcy will encounter a broken system that too often fails to provide them with the financial relief they seek and benefits big corporate creditors. Bankruptcy rules are complex and burdensome, requiring significant time and money to navigate. The rules also make it difficult for filers to stay afloat while they regain their financial footing, jeopardizing their ability to pay their mortgages or rent, maintain their car, or otherwise care for themselves or their families. Many who file for bankruptcy will find that the system cannot resolve their biggest debts—student loans and home mortgages.
The Bill, if enacted, would;
- Combine the two bankruptcy chapters that consumers may use when filing for protection into one chapter.
- Allow student loan debt to be discharged.
- Provide further protections for consumers to keep their homes and cars when filing for bankruptcy protection.
- End the special privilege that prevents local government fines from being discharged.
- Ban the collection of consumer debts that violate consumer protection laws.
- Allow consumers to sue creditors who attempt to collect on debt that has been discharged.
- Preventing consumers from being forced into mandatory arbitration in the event of a dispute.
“Bankruptcy is an option of last resort, but it also promises a fresh start so that people can get back up and keep working and providing for their families,” said Chairman Nadler. “Today that promise rings hollow for many people because the bankruptcy system has become complex, unfair, and even punitive for ordinary consumers. The Consumer Bankruptcy Reform Act ensures that the bankruptcy system works for the American people and not just big corporate creditors. Senator Warren and I have worked on this issue for many years, and I look forward to continuing our fight for consumers with this new legislation.”
Chapter 10, once known as “Chapter X,” listed the processes and procedures for bankruptcies involving corporations. Chapter 10 was initially introduced as part of the Bankruptcy Act of 1898 as a blueprint for reorganizing financially troubled companies until later incorporated into the Chandler Act of 1938. It was all together eliminated by the Bankruptcy Reform Act in 1978.
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