WASHINGTON — Senator Elizabeth Warren on Tuesday released a plan to restore protections for bankrupt families she says were stripped away by a 2005 law, returning to the issue that first got her involved in politics while implicitly taking aim at a prominent supporter of that measure: Joe Biden.
The former vice president — and current frontrunner for the Democratic presidential nomination — is not named in the 5,396-word Medium post Warren released about her plan on Tuesday morning. But the so-called “bankruptcy wars” were a formative political fight for Warren that ultimately pitted her directly against Biden, and her decision to highlight that chapter now may signal a growing willingness to draw sharp contrasts with him as her polling numbers lag less than a month before the Iowa caucuses.
“The banking industry wrote its own version of a bankruptcy bill and got its allies in Congress to introduce it,” Warren wrote on Tuesday. She added: “I lost that fight in 2005, and working families paid the price.”
Warren said her plan would simplify the bankruptcy system and lower the costs of filing for bankruptcy overall. It would also allow people to discharge student debt in bankruptcy.
As a senator from the banking center of Delaware, Biden was a prominent supporter of the industry-backed Bankruptcy Abuse Prevention and Consumer Protection Act, which grew out of 1990’s-era concerns about the rising number of Americans filing for bankruptcy, and essentially made it harder to do so. His representatives have since said that he won important concessions from the industry, given that the bill was almost certain to pass.
A working paper for the National Bureau of Economic Research found that, after the bill passed, Chapter 7 bankruptcy filings dropped by half, and insolvency rose by 25 percent. The law “may have removed an important form of relief for financially distressed borrowers,” the researchers found.
In Tuesday’s proposal, Warren said she wanted to “make it easier for people being crushed by debt to obtain relief through bankruptcy.” Her plan would do away with the “means test,” established in the 2005 law, that pushed some debtors to Chapter 13 bankruptcy — a long bankruptcy process that requires a repayment plan — instead of Chapter 7 bankruptcy, in which debtors surrender their property but keep future income.
Under Warren’s plan, people filing for bankruptcy would choose from a single “menu of options” that includes a Chapter 7-style process, as well as more specific procedures for particular debts. Warren said her plan would cut down on paperwork. It would also cut down on spending limitations for people in bankruptcy, so people could “set aside more money to cover the basics for themselves and their children.”
Warren’s plan would also allow debtors to discharge student loan debt in bankruptcy, which is rarely allowed under current bankruptcy law. It also has provisions intended to help people keep their homes and cars if they go bankrupt, and includes measures intended to address inequalities of race and gender in the bankruptcy system.
Although bankruptcy is the bedrock of Warren’s academic career, she has not made her 2005 dispute with Biden a central piece of her campaign for the presidency. She made a rare direct mention of the issue shortly after he entered the presidential race in April.
“Our disagreement is a matter of public record,” she said in response to a question from reporters, adding that said she was trying to stand up for broke families. “I got into that fight because they just didn’t have anyone and Joe Biden was on the side of the credit card companies.”
The “bankruptcy wars,” as she calls them, were her entree into politics. As a law professor studying the root causes of bankruptcy, Warren spent about a decade trying to hold off the changes, first as a member of a commission intended to review bankruptcy laws, and then as an advocate working directly with senators like Ted Kennedy of Massachusetts to stop the 2005 legislation.
“Those who want to say the way to solve rising consumer bankruptcy is by changing the law are the same people who would have said during a malaria epidemic that the way to cut down on hospital admissions is to lock the door,” Warren told the Washington Post in 1998.
As the fight went on, Warren trained her sights squarely on Biden. “His energetic work on behalf of the credit card companies has earned him the affection of the banking industry and protected him from any well-funded challengers for his Senate seat,” she wrote in a 2002 paper for the Harvard Women’s Law Journal.
And in 2005, the two faced off in a Congressional hearing. Warren told him credit card companies were already overloading people with fees and payments, which prompted Biden to suggest she focus on that issue, rather than on bankruptcy.
“You can’t take away the last shred of protection from these families,” Warren said.
“Okay,” Biden responded. “You’re very good, professor.”
The bill passed that year, and Warren said the loss stuck with her.
“The bankruptcy wars changed me forever,” she wrote in her 2014 autobiography. “Even before this grinding battle, I had begun to understand the terrible squeeze on the middle class. But it was this fight that showed me how badly the playing field was tilted and taught me that the squeeze wasn’t accidental.”
Correction: An earlier version of this story misstated the year of Warren’s autobiography. The correct year is 2014.