Continuing a decades-long effort to change the nation’s bankruptcy system, Sen. Elizabeth Warren plans to propose legislation on Wednesday aimed at making the process less costly and complicated for the hundreds of thousands of individuals who seek court-sanctioned relief from debt each year. 

“People typically file for bankruptcy for one of three reasons: a job loss, a medical problem or a family breakup — and when they do, they’re faced with an expensive and complicated system,” the Massachusetts Democrat said in a statement in reintroducing the bill, known as the “Consumer Bankruptcy Reform Act.” 

“My bill would simplify and modernize the consumer bankruptcy system to make it easier and less expensive for people to get relief,” Warren added.  

Bankruptcies rising

The measure comes as personal bankruptcies compared this year with 2023 levels. More than 400,000 Americans have filed for bankruptcy in 2024, although that figure is far below their pre-pandemic average of about 750,000 personal bankruptcy filings a year. 

Warren said her bill would help families “avoid eviction, keep homes and cars and discharge local government fines.” It would also create a repayment plan for unsecured debt, including student loans, as well as eliminate a restriction that bars people from shedding private and public student debt in bankruptcy, like other types of consumer loans. 

Rep. Nadler, a New York Democrat, and Rep. Pramila Jayapal, a Democrat from Washington, are co-leading a House version of the bill, while Rhode Island Democrat Sheldon Whitehouse will cosponsor the measure in the Senate. The bill has been endorsed by a wide range of groups including the AFL-CIO, a labor union, and consumer advocacy groups Public Citizen and National Consumer Law Center.

“Big corporate debtors continue to reap the rewards of our broken bankruptcy system while everyday Rhode Islanders facing financial hardship struggle to obtain basic relief. I’m pleased to support this bill that makes the consumer bankruptcy system fairer and easier to access for those facing crushing personal debt,” Whitehouse said in a statement.

Among other things, Warren’s proposal would provide two routes for individuals to file for bankruptcy:

• No-payment discharge. For low-income filers, this option would wipe out unsecured debt other than child support or debts incurred by fraud.
• Debt-specific plans. This would let individuals resolve debts specific to their financial situation, pausing debt collection efforts  paused while filer remains current on loans.

The change would be a welcome one, according to advocates, who say the current bankruptcy rules can steer people in the wrong direction.  

It costs about $1,500 to file Chapter 7, and most attorneys require that their fees be paid upfront. Chapter 7 is a liquidation bankruptcy, where the filer’s nonexempt property and assets — possessions not protected by bankruptcy — are turned over to a trustee, and debt is discharged in three to six months. 

With a Chapter 13 bankruptcy, payments can be spread out, but the overall costs for filers is significantly higher, running an average of $4,500. Only about a third of people who file Chapter 13 make it to the end and have their debts discharged, research shows.