On January 7, 2020, the presidential campaign of Senator Elizabeth Warren released a plan to overhaul the consumer bankruptcy system in the United States. The plan would repeal means testing and other provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. It would also implement enhanced protections for consumer debtors who file for bankruptcy.
Perhaps most significantly, the plan would abolish the “undue hardship” standard for the discharge of student loans. Under current law, borrowers seeking to discharge student loans must file a separate adversary proceeding alongside their non-adversary bankruptcy case and make a significant showing of hardship. The plan would treat student loans identically to other types of consumer debt, allowing for their discharge without any special showing.
Other notable aspects of the plan include:
- A consumer debtor’s right to a statutorily-defined mortgage modification option in bankruptcy;
- A uniform federal homestead exemption;
- The ability of a consumer debtor to compel a mortgage lender to complete certain pending foreclosure proceedings when the consumer has vacated the property;
- Amendments to the Fair Debt Collection Practices Act to prevent collection of time-barred debt through the bankruptcy process, legislatively reversing the Supreme Court’s 2017 decision in Midland Funding, LLC v. Johnson;
- The creation of a private right of action for debtors to sue creditors attempting to collect on debts discharged in bankruptcy; and
- Enhanced abilities of bankruptcy trustees to undo fraudulent transfers, including the imposition of criminal sanctions for knowing involvement with a fraudulent transfer.
Enacting the changes outlined in the plan would require legislative amendments to the Bankruptcy Code.
Even if Senator Warren’s bankruptcy reform plan is not enacted into law, the plan’s themes of student loan forgiveness, mortgage relief and home ownership protection, and debt collection practices could be incorporated into other legislative proposals. Further, if there is a change in administration following the 2020 presidential election, the plan’s themes may hint at possible changes in federal agency priorities. For instance, student loan servicing and hardship relief, mortgage modification and foreclosure practices, and debt collection practices may become priorities for the Consumer Financial Protection Bureau, as well as for the federal banking agencies, the Department of Education, and the Federal Trade Commission, to the extent of their respective areas of authority.