The Americans Joe Biden Left Behind on the Bankruptcy Bill

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Andrew Harnik/AP Photo

Democratic presidential candidate former Vice President Joe Biden high-fives a member of the audience during a campaign rally at Modern Woodmen Park, January 5, 2020, in Davenport, Iowa.

Elizabeth Warren’s new consumer bankruptcy plan (Full disclosure: I consulted with the Warren campaign on the policy) aims squarely at unwinding one of former Vice President Joe Biden’s chief legislative accomplishments, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The bankruptcy bill was perhaps the most anti–middle class piece of legislation in the past century. It was also Warren’s introduction into the bare-knuckle world of legislative politics. She fought the bill tirelessly and succeeded in blocking it for nearly a decade. Her new plan makes clear that she hasn’t given up the fight.

Biden’s support for BAPCPA is well known, but his numerous roll call votes on amendments to the bill have never been previously examined. Warren’s plan draws sharp attention to these votes by adopting many of the very positions Biden opposed. An examination of Biden’s roll call votes paints a very different picture of Biden’s involvement with the bill than the vice president likes to present. The record makes clear that as a senator, Biden used his clout to push for the law’s passage and to defeat amendments to shield servicemembers, women, and children from its harsh treatment. When votes were taken, “Middle-Class Joe” was no friend to the middle class.

Bankruptcy is the last resort for millions of families that find themselves overburdened with debt, often through no fault of their own, as a result of uninsured medical expenses, life savings stolen by a drug-addicted child, or a global financial crisis. By enabling honest but unfortunate debtors to wipe out debts, bankruptcy serves as a financial safety net for families desperately trying to stay in the middle class.

Bankruptcy law offers debtors a choice between a Chapter 7 and a Chapter 13 process. In Chapter 7, debtors surrender their current assets above a minimum level to creditors, but retain all of their future income. In Chapter 13, debtors retain their assets, but are required to devote all of their disposable income for several years to a demanding payment plan. Chapter 7 gives debtors an immediate “fresh start,” by wiping out most debts. Chapter 13 debtors have to repay more, and many ultimately fail to complete payment plans.

As the Prospect detailed Tuesday, BAPCPA made it harder for consumers to file for Chapter 7 by imposing a “means test” for Chapter 7 eligibility, and by substantially increasing the cost of filing for bankruptcy. This caused debtors’ average total out-of-pocket costs for filing for Chapter 7 to rise from $600 to $2,500. The subsequent result was a permanent 50 percent drop in Chapter 7 bankruptcy filings. BAPCPA made bankruptcy too expensive for the most broke households, making financial stress, mortgage defaults, and foreclosures more likely, particularly after the 2008 financial crisis.

Not only did the law discourage bankruptcy filings, but it made it harder to wipe out credit card debt and student loans in bankruptcy. The result was greater profits for consumer lending businesses, many of which are based in Biden’s state of Delaware. Not surprisingly, then, by lowering the risk of bad lending decisions, the Biden bankruptcy bill unleashed a glut of aggressive private student lending, which has contributed to the massive rise in student loan debt.

The bankruptcy bill was perhaps the most anti–middle class piece of legislation in the past century.

BAPCPA’s passage was one of Biden’s long-sought goals as a senator. Not only did Biden vote for the legislation four times between 1998 and 2005, but he was so singularly committed to its success that he inserted it into a foreign-relations bill in 2000, and later was the sole Democrat on the Senate Judiciary Committee to vote for the bill.

Biden also consistently voted against efforts to soften BAPCPA’s blow on vulnerable populations. He voted against three amendments to ease bankruptcy requirements for consumers whose financial troubles stem from medical expenses. He voted against an amendment that would have helped seniors keep their homes. He voted against exempting servicemembers and widows of servicemembers killed in action from the law’s eligibility restrictions. He voted against an amendment to exempt women whose financial troubles stemmed from deadbeat husbands’ failure to pay child support or alimony. And Biden even voted against an amendment that would have ensured that children of debtors could still be given birthday and Christmas presents. Biden also voted against allowing debtors to pay their union dues during bankruptcy, potentially imperiling their employment and ability to achieve financial rehabilitation.

Several of these amendments are resurrected in the Warren bankruptcy plan, including the union dues and children of debtors amendments.

It’s not as if Joe Biden was opposed to all amendments to the legislation: He voted to enshrine a “millionaire’s loophole” that allows wealthy, well-counseled debtors to shield their assets from creditors by placing them in asset-protection trusts. Nor did he act to cut off the loophole that shields assets placed by wealthy families in “dynasty trusts,” such as are offered by Delaware.

Biden claims that he worked to ensure that the legislation protected the interests of women and children by making the repayment of alimony and child support obligations the top priority in bankruptcy. This is false. Prior to BAPCPA, domestic support obligations were formally eighth in line for repayment. Functionally, however, they were second in line, right after the administrative costs of the bankruptcy, because the obligations ranked second through seventh priority, such as emergency bailout loans from the Federal Reserve or money owed to grain elevators, do not exist in consumer bankruptcy cases. The Biden bankruptcy bill rewrote the statute to provide that domestic-support obligations are to be paid first—unless there are administrative expenses. In other words, BAPCPA’s protections for women and children were all window dressing. Women and children still stand behind administrative expenses in bankruptcy. The claim that BAPCPA helped women and children is simply dishonest.

If anything, BAPCPA actually hurt women and children, as women’s groups argued at the time. Because BAPCPA made it impossible to wipe out certain credit card and student loan debt in bankruptcy, it meant that banks would be able to compete with child support and alimony claims for deadbeat ex-husbands’ remaining assets after the bankruptcy.

It’s hard to reconcile the Biden bankruptcy bill with Biden’s claims of being “Middle-Class Joe.” When it counted, Joe Biden looked out for millionaires and the banks, not the middle class.