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Consumer Bankruptcy Reform Act Of 2022: What To Know

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Back in 2020, Senator Elizabeth Warren and Representative Jerrold Nadler proposed a consumer bankruptcy bill that would have resulted in a major overhaul of the consumer bankruptcy system. According to an article in Bloomberg, that bill did not “gain traction,” yet the lawmakers are seeking to garner support for a new version of that bill. Anyone who is considering the possibility of consumer bankruptcy in the future, or who is closely following discussions of consumer bankruptcy in the United States, should learn more about the proposed bill and how it would significantly change the consumer bankruptcy system as we currently know it.

The proposed legislation is named the Consumer Bankruptcy Reform Act of 2022, and like its predecessor, the bill would do away with current forms of consumer bankruptcy in favor of a streamlined system. The proposed legislation would also make other significant changes to current law if it were to pass. What should you know about the bill? Consider the following information from our West Palm Beach bankruptcy lawyers.

Creating a Chapter 10 Bankruptcy

 One of the key ways in which the Act would alter current consumer bankruptcy law is to eradicate multiple forms of consumer bankruptcy and replace them with Chapter 10 bankruptcy. The drafters of the legislation have emphasized that the requirements for different types of consumer bankruptcy can be complicated and confusing, and it can be difficult for individual debtors to understand their eligibility for different types of bankruptcy and how to move forward with the bankruptcy process. If the Act were to pass, similar to the proposed legislation in 2020, individual debtors would no longer need to determine whether they could file for Chapter 7 or Chapter 13 bankruptcy, or in some cases, whether they would need to file for Chapter 11 bankruptcy instead.

Rather, every individual debtor would file for Chapter 10 bankruptcy, with options for liquidation or reorganization based on their individual financial circumstances.

Increased Wildcard Exemption 

What are some of the other key changes that the bill proposes? One of the major changes is an increase in the wildcard exemption. Under the Act, the bankruptcy wildcard exemption would rise to $35,000.

Bankruptcy for Student Loans and Other Currently Non-Dischargeable Debts 

Beyond the change to the bankruptcy chapter and the notable increase in the wildcard exemption, the Act also proposes to allow individual debtors to more easily have student loans discharged through bankruptcy along with other types of debt that are difficult to discharge or that may currently be non-dischargeable.

To be clear, the Act would not permit all types of currently non-dischargeable debt to be eligible for discharge in a Chapter 10 case. Rather, in consideration of what the Act describes as “racially disparate outcomes that disadvantage people of color,” the Act would also permit debtors to have certain types of government and criminal fines discharged in a bankruptcy case. Furthermore, homeowners would have more options for mortgage modifications to avoid losing their homes.

Contact a West Palm Beach Personal Bankruptcy Lawyer

 If you have questions about your options for bankruptcy as an individual or consumer, you should get in touch with one of the West Palm Beach personal bankruptcy attorneys at Kelley, Fulton, Kaplan & Eller for assistance.

Sources:

news.bloomberglaw.com/bankruptcy-law/consumer-bankruptcy-overhaul-envisioned-in-new-bill-explained-1

congress.gov/bill/117th-congress/senate-bill/4980/text?r=1&s=1

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