How Joe Biden helped remove bankruptcy protection from millions just before a recession
During the last debate of the Democratic presidential primaries, Joe Biden and Elizabeth Warren had a delicate and tense exchange on the creation of the Consumer Financial Protection Bureau. The friction between the two goes way back, long before Biden was vice president and Warren became senator from Massachusetts. The first two clashed over Biden’s support for bankruptcy reform in the late 1990s and early 2000s, when he represented Delaware in the Senate.
The key detail is the difference between the two types of bankruptcy that a person can file: Chapter 7 and Chapter 13. Chapter 7 is known as liquidation bankruptcy and is intended for people with limited income. This allows them to sell whatever assets they can to pay off creditors, and then pay off most of the rest of their debts relatively quickly. In contrast, Chapter 13, Bankruptcy Reorganization, puts the debtor on a payment plan, so that a portion of his future income is secured to pay off his creditors. If you are a creditor, this is the option you would prefer someone to take when they owe you money, as you will get more out of it in the long run.
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was intended, on paper, to prevent people from abusing Chapter 7 bankruptcy. It accomplished this through means testing, making it harder for people to file Chapter 7 bankruptcy by. report in Chapter 13. If a person’s income exceeds a certain threshold, they are not eligible to report Chapter 7. The bill also required that people take a course in credit counseling. no more than 180 days before declaring bankruptcy. It also limits the types of debt a person can pay in bankruptcy: if they use a credit card to spend too much money on “luxuries” or withdraw too many cash advances, this line of credit cannot be erased. And, infuriatingly, the bill made it completely impossible to pay off student loan debt. It is perhaps the one law that has done the most to plunge the United States into the current student debt crisis.
Biden was one of the main Democratic champions of the bill, and he fought for his passage from his position in the Senate Judicial Commission. He had lobbied for two bankruptcy reform bills in 2000 and 2001, both of which failed. But in 2005, BAPCPA succeeded in erecting all kinds of roadblocks for Americans struggling with debt, just before the 2008 financial crisis. Since the adoption of BAPCPA, Chapter 13 deposits have increased by 24%. of all bankruptcy filings per year at 39 percent in 2017. Melissa Jacoby, professor of law at the University of North Carolina specializing in bankruptcy, said Politics, “I doubt the bill limited the abuses the bill was based on, in part because they didn’t necessarily exist in the first place.”
Trade unions, consumer groups and the National Women’s Organization have all opposite BAPCPA, but it had strong support from the credit card industry. Delaware is essentially a domestic tax haven for businesses and therefore financial institutions like credit card companies hold enormous power in the state. As political writer Alexander Cockburn written onceThe first duty of any Delaware senator is to auction the banks and large corporations that use the small state as a deposit box and legal sanctuary. Biden has never let his masters down in this main task. any bill that sticks to ordinary people in the name of Money Power and you will likely detect Biden’s hand at work. “