Regardless of their political affiliation, all student-loan borrowers who are drowning in debt will want the next President to do one thing: reform the bankruptcy law. Specifically, they will want the next President to pressure Congress to repeal the Bankruptcy Reform Act of 2005 and to remove the "undue hardship" language from the Bankruptcy Code.
The Bankruptcy Reform Act of 2005--named with unintended irony--made it more difficult for Americans to discharge credit card debt in the bankruptcy courts, and it made the bankruptcy process more expensive and more difficult for beaten-down debtors.
According to Senator Elizabeth Warren:
After the bill passed, bankruptcy filings went down permanently by 50%, and the number of insolvent people went up permanently by 25%. By making it harder for people to discharge their debts and keep current on their house payments, the 2005 bill made the 2008 financial crisis significantly worse: experts found that the bill “caused about 800,000 additional mortgage defaults and 250,000 additional foreclosures.”The law also made private student loans almost impossible to discharge in bankruptcy. Before its passage, debtors could not discharge federal student loans in bankruptcy unless they could show "undue hardship." After the bankruptcy reform law was passed, private loans were also nondischargeable unless a debtor could show undue hardship.
The law was a Republican-backed bill, which Senator Ted Kennedy scathingly criticized. “This legislation breaks the bond that unites America, it sacrifices Americans to the rampant greed of the credit card industry,” Kennedy said.
But many Democratic senators crossed party lines and voted with the Republicans. One of those aisle-crossing Democrats was Joe Biden. Senator Biden claimed the new law would cut down on abuses in the bankruptcy system. In fact, there was little evidence that debtors were scamming the bankruptcy courts.
In my view, Biden disguised his motives for voting in favor of the bankruptcy reform bill. In reality, Biden was doing the bidding of the corporate banks, which have donated millions to his campaign coffers over the years. To borrow a quote from The Godfather, Biden's vote wasn't personal; it was strictly business.
Now, however, Mr. Biden is singing a different tune. As reported by Matthew Yglesias in Vox, Biden recently changed his position on the 2005 law. He now endorses the views of Senators Elizabeth Warren and Bernie Sanders, who have called for its repeal.
This is good news for student-loan debtors, but I think Mr. Biden needs to express his change of views more forcefully. Student debtors need to hear Biden explicitly call for the repeal of the 2005 Bankruptcy Reform Act and the abolition of the "undue hardship" language in the Bankruptcy Code. If he does that, Biden will win a lot of votes in the November election.
|Biden and the 2005 Bankruptcy Reform Act: It wasn't personal. It was strictly business.