On December 9th, Senator Elizabeth Warren (D-MA) introduced the first major consumer bankruptcy reform legislation before Congress since 2005. Titled “Consumer Bankruptcy Reform Act of 2020
” (CBRA), this Bill, if passed, would fundamentally alter the bankruptcy system as we know it.
The CBRA seeks to eliminate chapters 7 and 13 and replace them with a new chapter 10, which will provide two routes for individuals to seek bankruptcy relief:
- For debtors whose annual income falls below 135% of the median income, they will receive a “no payment discharge”, similar to the discharge currently available under chapter 7. However, under the CBRA, debtors would receive this “no payment discharge” immediately upon filing (as opposed to 90-120 days after filing under the current system). Both private and federal student loan debt would become dischargeable under the CBRA.
- For debtors whose annual income is above 135% of the median income and/or for debtors who are seeking to address a cure or repayment of secured debts such as home mortgages and motor vehicle loans, the CBRA provides for three types of repayment plans: one for unsecured debt, one for home mortgages and one for other secured debts. Highlights of these new, proposed repayment plans are as follows:
- A debtor may file one or more plans, depending upon the type of debt they are seeking to address, but each plan will be treated separately for purposes of confirmation and discharge.
- Debtors may now cram down mortgages secured by the debtor’s principal residence to the fair market value and may extend the maturity date under the Note, up to either 15 years from confirmation or five years after the original maturity date.
- If a debtor defaults under a home mortgage or other secured debt plan, the secured creditor is stayed from taking any action until the debtor is at least 120 days delinquent in plan payments for a home mortgage or 90 days delinquent in plan payments for other secured debt.
- The “910-day Rule” would be eliminated for auto loans, replaced with a “90-day” rule. Debtors would consequently only be required to repay auto lenders up to the fair market value of the motor vehicle on any auto loans issued more than 90 days prior to the bankruptcy filing.
- The length of a repayment plan for unsecured debt will be three years.
- Debtors receive a discharge under a repayment plan upon confirmation, not upon completion of plan payments. In exchange, the debtor grants a lien in favor of the trustee equal to the value of the payments to be made through the plan.
Additionally, under the CBRA, the requirement for debtors to receive credit counseling would be eliminated and would allow debtors to pay attorney fees through a repayment plan. Further, debtors whose income falls at or below 150% of the poverty line could seek a waiver of filing and administrative fees.
The “co-debtor” stay, currently applicable only in chapters 12 and 13, would become applicable to all debtors in chapter 10, essentially extending the protections of the co-debtor stay to all individuals, whether in a repayment plan or seeking a “no payment discharge.”
Weltman will continue to stay abreast of any movement on this Bill in Congress and will keep our clients updated. If you have any questions, feel free to reach out to Weltman’s Bankruptcy team
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.