Now that the democrats are down to one presidential candidate, it seems appropriate to examine Joe Biden’s views on bankruptcy, in comparison to President Trump’s views. Candidate Biden has not offered any new specific bankruptcy plan or reform. However, he was instrumental in passing the 2005 Bankruptcy Abuse Prevention And Consumer Protection Act (BAPCPA), so many view that as the “Biden Plan”. BAPCPA was introduced to make it more difficult for debtors to file for Chapter 7 bankruptcy and encouraged debtors to file for Chapter 13 bankruptcy instead. The only significant change to bankruptcy proceedings under President Trump was the passage of the Small Business Reorganization Act of 2019.

BAPCPA Provisions

BAPCPA created a bankruptcy means test that determines whether individuals filing for bankruptcy can file for Chapter 7 bankruptcy or whether they must opt for Chapter 13 bankruptcy. The main goal was to make it more difficult for higher-income individuals to qualify for Chapter 7 bankruptcy by more closely examining the filer's ability to repay their debts. Under Chapter 7 bankruptcy, most unsecured consumer and business debts are forgiven or discharged. This bankruptcy plan also allows for the liquidation and sale of certain assets by a designated trustee in order to repay creditors, which means the trustee will sell any significant nonexempt property to repay creditors. Most debts are discharged in a Chapter 7 bankruptcy, it typically only takes a few months to complete, and you are able to keep most personal property.
Bankruptcy filed under Chapter 13 requires debtors to repay a portion of the debt before a debt discharge is considered. Chapter 13 bankruptcy requires debtors to restructure their debts and create a three- to five-year repayment plan, under which the debtor will use future income to pay off their creditors in part or in full. BAPCPA also set in place mandatory credit counseling for consumers and businesses looking to file for bankruptcy. This requires the debtor to complete an accredited non-profit credit counseling program no more than 180 days before they file.

Criticism of BAPCPA

Since BAPCPA was enacted, there have been many critics of it (including Joe Biden’s former rivals for the democratic nomination). One of the biggest criticisms of the current bankruptcy system is that a significant majority (67%) of all bankruptcy filings are the result of unpaid medical debt. Many view filing for bankruptcy for this reason as draconian, especially considering the limited options for discharging this debt in bankruptcy. Another criticism of BAPCPA is the requirement of choosing the two limited paths in bankruptcy, either Chapter 7 or 13. Critics suggest a less rigid system, which would allow for more people to keep their cars and/or homes.

SMALL BUSINESS REORGANIZATION ACT OF 2019

The most significant change to the bankruptcy laws under President Trump is the “Small Business Reorganization Act of 2019”, which took effect in February, 2020. The SBRA now requires bankruptcy trustees who commence preference actions to consider, before commencing suit, an alleged preference recipient’s statutory defenses based on “reasonable diligence under the circumstances and taking into account a party’s known or reasonably known affirmative defenses.” A “preference claim” is one where the debtor makes a payment to a creditor less than 90 days before filing for bankruptcy. The Bankruptcy Code allows the trustee to attempt recovery of those payments, under the presumption that the creditor who received said payment would recover more of its debt than would be allowed during the bankruptcy proceedings. Under the SBRA, a trustee will now have to consider an alleged preference recipient’s potential statutory defenses before filing a preference action, potentially benefitting the business on the receiving end of those payments. The SBRA also revised Chapter 11, making it easier for small businesses to restructure after filing for bankruptcy. If used as designed, the SBRA will ultimately protect businesses, to the likely detriment of consumers.
Regardless of who wins the presidential election in November, in light of the spread of the Coronavirus and the tens of millions of unemployed Americans, it is possible that the bankruptcy system will be forced to be changed by Congress and signed into law by whoever is residing in the Oval Office at the time.

ABOUT LINDA A. LINDSEY

Linda A. Lindsey is a life-long resident of the Inland Empire and she is President of Lindsey Law, APC. She is not only a licensed attorney in the State of California and the United States – Central District Court of California; she also holds an M.B.A. and has over 25 years of successful for-profit and non-profit business experience. She believes that all persons should have access to justice and even with a busy law practice she contributes her time and energy at local legal aid agencies. Ms. Lindsey provides legal representation in the areas of family law, bankruptcy, probate: conservatorships & guardianships, and criminal defense. Lindsey Law, APC is dedicated to providing its clients with quality legal representation from inception to conclusion. To learn more about Ms. Lindsey and Lindsey Law, APC, please visit http://lindseylawoffice.net