New Consumer Bankruptcy Bill Would Overhaul the Process

If you have been considering consumer bankruptcy in Illinois, or if you have been following discussions about potential changes to the consumer bankruptcy process, you may know that a bill was proposed in 2020 that aimed to change how consumer bankruptcy works. The bill will streamline the process and eradicate some of the current distinctions between Chapter 7 and Chapter 13 bankruptcy. According to a recent article in Bloomberg, Democrats in Congress have reintroduced a bankruptcy bill “that would radically alter how individuals file bankruptcy.” The article underscores that, in introducing the Consumer Bankruptcy Reform Act of 2022, Senator Elizabeth Warren and Representative Jerrold Nadler are hoping to obtain support for this type of legislation after the 2020 bill “failed to gain traction.”

What do you need to know about the newly proposed legislation and how it could potentially impact the consumer bankruptcy process?

Key Aims of the Proposed Legislation

The consumer bankruptcy process as it currently works consists largely of two types of bankruptcy filings: Chapter bankruptcy and Chapter 13 bankruptcy. Debtors who want to file for Chapter 7 bankruptcy, which is a type of liquidation bankruptcy, must be able to pass the “means test” in order to be eligible. Debtors who want to file for a reorganization bankruptcy under Chapter 13 need to show that they earn a regular wage such that they will be able to make regular payments for three to five years under the terms of a repayment plan and that their debts do not go beyond the current limit. In some circumstances, when a consumer has too much debt to qualify for Chapter 13 bankruptcy, that consumer will file for Chapter 11 bankruptcy instead.

The Consumer Bankruptcy Reform Act of 2022, like its 2020 predecessor, would do away with these different types of bankruptcy and complicated requirements for consumers. Instead, the legislation would replace those types of consumer bankruptcy with a single type of bankruptcy - Chapter 10 bankruptcy. In fact, since Chapter 13 bankruptcy is solely for consumers, it would be eliminated altogether. Through Chapter 10 bankruptcy, consumers would have options depending on their debts and their income level.

Benefits of the Proposed Changes to Bankruptcy Law

As the article in Bloomberg underscores, the proposed changes to U.S. bankruptcy law would provide a wide range of benefits to consumers, and the new law would be more egalitarian in its effects on consumers. For example, as the article highlights, through Chapter 10, “debtors would be allowed to wipe out certain government fines and criminal fines,” which “disproportionately affect people of color.” In addition, Chapter 10 bankruptcy would give homeowners “more options to sell their properties free of liens and facilitate mortgage modifications based on fair market value.”

In addition, the wildcard exemption would go up to $35,000, which is a significant increase. Perhaps most significantly, the proposed legislation would allow debtors to discharge student loans in the same way that they can discharge other types of unsecured debt. The law would also amend various consumer protection laws to provide increased protection for consumers.

Contact an Oak Park Bankruptcy Attorney

If you have questions about consumer bankruptcy, one of our Oak Park bankruptcy attorneys can help. Contact the Emerson Law Firm to learn more.



See Related Blog Posts:
Converted, Closed, and Dismissed Bankruptcy Cases: What is the Difference?
Inflation and Consumer Bankruptcy

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