Published on:

Highlights of the New Consumer Bankruptcy Reform Bill Under Review

ABIToday the American Bar Institute (ABI) Consumer Bankruptcy Committee presented an excellent webinar about the new bankruptcy bill pending in the House.  Basically, the House would eliminate the existing Chapter 7 and 13, and replace them with a new Chapter 10 under the Consumer Bankruptcy Reform Act of 2020.

While this is a major overhaul and expectations are low that it would pass as is, there is a good possibility that many of the points within may be included in various stimulus bills and are important to note for the future.  I am not expressing an opinion for or against any of these items.  I’ve included a short summary below:

The first goal was to streamline the process and make it cheaper:

  • Repeal the means test
  • Repeal the BAPCPA credit counseling requirements and allow for a cost savings to the debtor
  • Waiver of filing and other administrative fees if below poverty line
  • Creates multiple options for discharge with earlier discharges available
  • Allows more attorney’s fees paid in the plan as opposed to up front

Additional goals were to change the type of relief presently available:

  • Increase federal exemptions and prohibits states from opting out
  • Make certain criminal fines and fees dischargeable
  • Make certain civil rights violations nondischargeable
  • Limit relief for those with trusts
  • Reduce bad creditor behavior

A couple of areas we do a lot of work in are focus points of this proposed bill:

Student loan discharge

  • No requirement of undue hardship
  • Would apply to federal and private loans
  • Treats student loans as regular consumer debt for dischargeability

Renters and homeowners

  • Would require a mortgage holder to take a property back or face forfeiture to address zombie houses (subject to junior liens)
  • Allow renters to remain in their lease without curing rent defaults of less than six times their monthly rent
  • Allow homeowners to modify their mortgages based on market value, and interest reduced to a sustainable debt-to-income ratio

Consumer protection violations

  • Disallows creditor claims if they violate any federal consumer law
  • Expands the FDCPA to cover creditors who file claims for debts that are barred by the SOL
  • Limits arbitration
  • Holds creditors more accountable for debt collection violations after discharge
  • Establish a new Consumer Bankruptcy Ombuds at the CFPB to handle consumer bankruptcy complaints

This is a lot to unpack and this is a major overhaul.  Some of this may also be added to the existing Chapter 7 and 13 framework.

A full copy of this bill can be found here.

If you need help with your debt — consumer debt, student loans, home mortgages or rent that are delinquent, please reach out to us.  But we won’t comment on this particular bill as we, like you, have no idea if any of this will become law one day.


To Schedule a Consultation
Contact Information