2005 Bankruptcy Reform Act Controversy

January 16, 2020

The “Trojan Horse” 2005 Bankruptcy Reform Act is Creating Election Controversy 

The 2005 Bankruptcy Reform Act is creating some controversy in the upcoming election.   A renewed feud over the validity of the act between democratic candidates Elizabeth Warren and Joe Biden appears to be building.   Was the 2005 law change truly a Trojan Horse that only served the interests of the credit industry? Elizabeth Warren would likely agree and may use this premise to attack Joe’s Biden for supporting the act over 15 years ago.

The 2005 Bankruptcy Reform Act- Why A Trojan Horse?

Many people currently argue that the “reforms” that happened through the 2005 Bankruptcy Reform Act were actually terrible news for people in debt.  All of the reforms appeared to only be in the credit industry’s favor. More debtors than ever were forced into Chapter 13 to pay back large amounts of their debt.   Even Chapter 7 filing was made more difficult with more complex forms and a class requirement. Arguably, bankruptcy access in entirety was made much more difficult though the 2005 law change.  No provisions of the code made bankruptcy in any way “easier.”

Joe Biden was among the democrats that supported the law change.  This is part of why bankruptcy is becoming a point of argument in the election.  Bi-partisan support for the law change occurred in 2005 with Elizabeth Warren as a leader of the opposition.   The primary argument that democrats and republicans used for the law change was to create a law that was more “strict” on debtors.  The goal was to make these debtors ultimately become more financially responsible. They also hoped to achieve more abundant lines of free credit. 

Did anything good come from the 2005 Law Change?

Not really.  Or at least that is the consensus of most parties who study the legislation.    Unfortunately, none of the Act’s stated goals appear to have been achieved through the 2005 Bankruptcy law change.  Credit clamped up after the 2008 collapse. People continue to get into debt irresponsibly in massive numbers. In fact, some argue that the law change emboldened creditors to further push the entire nation to credit levels, arguably causing the 2008 financial crisis itself.  

Society does not appear to have benefited as a whole through the law change.  It went as far as to even tamper with ancient concepts of debt forgiveness like allowing a debt release to be available every seven years.  This tampering of age-old concepts should seem repulsive to most people, but for some reason passed through virtually unnoticed by Congress and society alike. 

Perhaps the thin facade of the horse’s exterior was all the credit industry needed to get the law to pass.   It will certainly be reviewed in greater detail if Elizabeth Warren continues her quest to expose and destroy it.  Perhaps it will truly go down eventually as an obvious “Trojan Horse” piece of legislation. Hindsight is always 20/20.   By the end of this, Joe Biden may not end up looking like a very observant legislator at the very least. 

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