Theodoric Meyer is a Politico reporter.

On a February morning in 2005 in a hearing room in the Dirksen Senate Office Building, Joe Biden confronted Elizabeth Warren over a subject they’d been feuding over for years: the country’s bankruptcy laws. Biden, then a senator from Delaware, was one of the strongest backers of a bill meant to address the skyrocketing rate at which Americans were filing for bankruptcy. Warren, at the time a Harvard law professor, had been fighting to kill the same legislation for seven years. She had castigated Biden, accusing him of trying “to sell out women” by pushing for earlier versions of the bill. Now, with the legislation nearing a vote, Biden publicly grappled with Warren face to face.

Warren, Biden allowed, had made “a very compelling and mildly demagogic argument” about why the bill would hurt people who needed to file for bankruptcy because of medical debt or credit card bills they couldn’t pay. But Biden had what he called a “philosophic question,” according to the Congressional Record’s transcript of the hearing that day: Who was responsible? Were the rising number of people who filed for bankruptcy each year taking advantage of their creditors by trying to escape their debts? Or were credit card companies and other lenders taking advantage of an increasingly squeezed middle class?


Warren blamed the lenders. Many credit card companies charged so much in fees and interest that they weren’t losing money when some of their customers went bankrupt, she said. “That is, they have squeezed enough out of these families in interest and fees and payments that never paid down principal,” Warren said.

Biden parried. “Maybe we should talk about usury rates, then,” he replied. “Maybe that is what we should be talking about, not bankruptcy.”

“Senator, I will be the first. Invite me.”

“I know you will, but let’s call a spade a spade,” Biden said. “Your problem with credit card companies is usury rates from your position. It is not about the bankruptcy bill.”

“But, senator,” Warren countered, “if you are not going to fix that problem, you can’t take away the last shred of protection from these families.”

At this last remark, Biden smiled and sat back in his chair, according to Mallory Duncan, a lobbyist who was in the room.

“I got it, OK,” Biden said. “You are very good, professor.”

“It was like watching a championship tennis match,” Duncan told me, more than a decade later, of the sparring between the two future presidential candidates.

Fourteen years later, Warren and Biden are expected to find themselves facing off again, this time on a much larger stage. And while a bill that passed in 2005 is unlikely to dominate the 2020 Democratic primaries, the fight over the bankruptcy legislation helped shape Warren politically and could be a surprising liability for Biden in the race to become his party’s choice to replace President Donald Trump.

The bill, which was signed in to law by George W. Bush two months after Biden and Warren tangled, made it harder for Americans to discharge the debts they accrue from things like credit cards and medical bills. According to one study, the law “benefited credit card companies and hurt their customers.” Delaware was home to one of the nation’s biggest credit card issuers at the time, and advocates on both sides of the debate saw Biden as trying to represent his state’s interests in Congress. But with emotions still raw about the banking bailouts of the Great Recession, some Democrats see Biden’s vote for the bill as part of a broader record that’s not as progressive as he’d like it to appear.

And the issue may have special resonance in a primary in which Democrats will be competing for the chance to try to defeat a president whose businesses have gone bankrupt half a dozen times, and who bragged, during the 2016 campaign, about using the nation’s bankruptcy laws “brilliantly” to his benefit.

Some of the lobbyists and lawmakers who championed the bill say it’s worked the way they intended. The number of consumer bankruptcy filings has slumped from more than 2 million in 2005 to fewer than 800,000 in 2017, the most recent year for which statistics are available. Joe Rubin, who worked on bankruptcy legislation as a House Republican staffer in the 1990s and later lobbied in support of the bill for the U.S. Chamber of Commerce, wrote in 2015 that it had “returned bankruptcy to its roots as a last resort for consumers, particularly wealthy consumers, as it was intended.”

But bankruptcy scholars say the law has made it harder for people in financial distress — especially the poor — to file for bankruptcy. Hundreds of thousands of people who might otherwise file for bankruptcy have delayed doing so, according to research conducted by Warren and others who’ve studied the law. Meanwhile, there’s little evidence the law has tackled the problem that Biden and other lawmakers described as the reason that bankruptcy laws needed to be changed in the first place — a supposed surge in bankruptcy fraud and abuses. “I doubt that the bill reined in the abuses that the bill was premised on, in part because they didn’t necessarily exist in the first place,” said Melissa Jacoby, a law professor at the University of North Carolina who studies bankruptcy.

While Biden has expressed remorse for other aspects of his record in the Senate, including the way he handled Anita Hill’s accusations against Clarence Thomas during the Supreme Court confirmation hearings of 1991 and his vote for the crime bill in 1994, he has defended his push to pass the bankruptcy bill. Biden, “knowing that the bill was likely to make it through the Republican-led Congress, worked to moderate the bankruptcy bill and protect middle class families,” Bill Russo, a Biden spokesman, said in a statement to POLITICO. “He believed that if you have income and consumer debts you can pay, you should agree to a repayment plan that you can afford.”

Even so, Biden has expressed misgivings. One of the bill’s hundreds of provisions was to bar those who file for bankruptcy from getting rid of private student loan debt. (Government-backed student loans, which make up the vast majority of student loan debt, were already exempt from discharge in bankruptcy.) But “the private student loan market in this country has changed dramatically since 2005, in part due to the increase of for-profit education,” Russo said. In 2015, the Obama administration asked Congress to pass a law allowing those with private student loan debt to eliminate it through bankruptcy — reversing the change Biden had voted for a decade before. Congress hasn’t done so.

Former Sen. Chris Dodd (D-Conn.), who voted against the bill, described it as “one of the worst pieces of legislation of all time” when he ran for president in 2008 and questioned former Sen. John Edwards’ vote for it during a presidential debate. But Dodd told me he didn’t see Biden’s vote for the bill as a fault line between Biden and Warren. “I would call them both progressive Democrats, and they’ve reflected that throughout their careers,” Dodd said.

A Biden presidential campaign would surely be helped by the move to the left he made once he became vice president. Russo, Biden’s spokesman, noted that he’d “fought for some of the protections in the Dodd-Frank [financial reform] bill that banks opposed most strongly, including the Volcker” rule, which barred banks from using customers’ deposits to place their own bets in the market.

Still, some progressives say he hasn’t done enough to make up for what they see as his past mistakes. Biden’s vote for the bill, along with those he cast in favor of the Iraq War in 2003 and the crime bill, are “very out of step with where the electorate is,” said Rebecca Kirszner Katz, a Democratic operative who’s worked on the campaigns of progressive candidates such as Cynthia Nixon and New York Mayor Bill de Blasio. Biden’s record in President Barack Obama’s administration doesn’t absolve him of his votes in the preceding decade, she added.

“I don’t think he just gets a pass because he was Obama’s vice president,” she said.



***

When the fight over the bankruptcy bill began, in the 1990s, the economy was surging — but so was the bankruptcy rate. In 1996, for the first time, more than a million Americans declared personal bankruptcy, leading newspapers across the country to run stories on the trend. Reporters at the time identified a number of causes, including how easy it had become for Americans to get credit cards. But many stories at the time also identified another culprit: the end of shame.

Bankruptcy “no longer carries the stigma it once did, making it far easier for those who have simply accumulated too much debt to repudiate their obligations with only modest adverse consequences,” the New York Times reported in 1996. The Chicago Tribune reported two months later: “Increasingly, bankruptcy is becoming the solution of first resort for Americans faced with piles of debt.” Russell London, a Connecticut bankruptcy lawyer, told the Philadelphia Inquirer the following year: “I see people with $100,000 in casino debt going from one credit card to another. I see people taking a $4,000 vacation at Disney World just before they go bankrupt. There is a tremendous amount of abuse.”

The concern over the rising bankruptcy rate was part of the widespread fixation in the 1990s over layabouts abusing the system, a national mood that helped lead President Bill Clinton to work with Republicans in Congress to pass a welfare reform bill in 1996. Both issues played into the decade’s emphasis on the “politics of personal responsibility,” which resonated with many voters in those years. As the bankruptcy rate rose, lawmakers started to hear from their constituents. “It was coming from the small-town bankers, the community bankers, who felt that the current law was letting people escape paying their loans, even when they could afford to pay some or all of their loans,” Rick Boucher, a Democratic congressman who represented a rural, mountainous district in southwestern Virginia at the time, told me. Boucher heard similar concerns from “virtually all of the community bankers I talked to” at the time, he said.

Small-town bankers weren’t the only ones who were complaining. Former Sen. Robert Torricelli (D-N.J.) recalled meeting with the executives from Visa and MBNA, a major credit card company later absorbed by Bank of America. Visa showed him data indicating some cardholders who declared bankruptcy were taking unfair advantage of creditors to escape their debts. “We think many people are getting more relief than they need,” Kenneth Crone, a Visa executive, told the Washington Post at the time.

In 1997, Boucher and Rep. Bill McCollum (R-Fla.) introduced a bankruptcy reform bill, arguing that reforms were needed because declaring bankruptcy had become “no big deal,” as McCollum put it at the time. “I can’t completely explain why the stigma is gone, but it’s gone,” McCollum told the Washington Post. The two congressmen didn’t write the bill by themselves. The Washington lawyer George Wallace had drafted a bill for the American Financial Services Association similar to the one Boucher and McCollum introduced. Jeffrey Tassey, a top lobbyist for the trade group, acknowledged Wallace’s work at the time, although McCollum and Boucher did make changes to it.

To sell the bill, Tassey assembled a coalition of credit card companies, automotive lenders, credit unions and other companies that were “feeling various amounts of pain from the bankruptcy process,” as Tassey put it. Some borrowers were declaring bankruptcy when they hadn’t even fallen behind on their bills, Tassey said, leading creditors to believe they were abusing the system. The coalition led a massive lobbying campaign, recruiting, among others, Lloyd Bentsen, the former Treasury secretary and Democratic senator from Texas. In an op-ed for the Washington Times, Bentsen cited a Purdue University study that had found “nearly half of the people who file for bankruptcy could repay a significant amount of their outstanding obligations, but instead choose to renege.” But most of the work involved slowly winning over lawmakers. Tassey told me, “I can’t tell you how many times we went through the whole House and Senate” trying to persuade members of Congress to support the bill.

To get it done, the lobbyists needed Senate Democrats, and Biden was a natural ally. The credit card giant MBNA—at the time, the third-largest issuer of credit cards—was based in his home state. Its executives and employees were some of Biden’s biggest campaign contributors, giving more than $200,000 over the course of his career, according to the Center for Responsive Politics. One of Biden’s sons, Hunter, worked at MBNA after graduating from law school and later consulted for the company after a stint in the Commerce Department. The Bidens’ ties to the company ran so deep that Obama campaign officials told the New York Times in 2008 that they were “one of the most sensitive issues they examined while vetting the senator for a spot on the ticket.” Biden was seen as so close to the company that he felt it necessary to tell the Washington Post at one point that he was “not the senator from MBNA.”

Some lobbyists described Biden’s support as crucial to the bill’s eventual passage. “Not having him there would have placed the future of the bill in this Congress in jeopardy,” Scott Talbott, a lobbyist for the Financial Service Roundtable, told Bloomberg News in 2001, as Congress appeared poised to send the bill to Bush’s desk. (Efforts to reconcile the House and Senate versions of the bill collapsed the following year.) John McKechnie, who spent years lobbying for the bill on behalf of the credit unions — which pressed lawmakers to support it, along with retailers, Wall Street banks and credit card companies — told me he felt Biden’s support for bill helped bring on board other Democrats. “There were several Democrats who followed Senator Biden’s lead in voting for it at the end,” McKechnie told me.

As the bill neared passage, Sen. Orrin Hatch (R-Utah), who had championed the bill, made a point of thanking Biden for his support. Biden and Tom Carper, the other Democratic senator from Delaware, “have worked tirelessly for years on this legislation, and they have taken some tough votes to get it done,” Hatch said on the Senate floor.

Russo, Biden’s spokesman, told me Biden supported the bill on its merits, not because of pressure from MBNA or other lobbyists. But the best explanation of why he voted for the bill might have come from Biden himself.

“Creditors are not people I am crazy about,” Biden said during a hearing in 2001, noting that he had refinanced his home in order to send his children to college. “But I start off with the proposition that something is rotten in Denmark, as the old expression used to be,” he added. “An awful lot of people are discharging debt who shouldn’t. This voluminous increasing in filing — it is exponential what has happened. Something is up, and that happened when the economy was booming, absolutely booming.” The rising bankruptcy rate was driving up prices for everybody else, he argued, including “people where I come from.”

“So I am so sick of this self-righteous sheen put on anybody who wants to tighten up bankruptcy is really anti-debtor,” Biden said. “People are getting hurt.”



***

As the fight over the bill dragged on, Warren emerged as the most prominent defender of the Americans who would be hurt by making it harder to file for bankruptcy. As a Harvard law professor who built her career tracking the effects of bankruptcy, she led a charge against the legislation that helped prevent its passage for close to a decade. “The bankruptcy filing rate is a symptom,” Warren and 109 other bankruptcy and commercial law professors wrote in a letter to Rep. Jim Sensenbrenner (R-Wis.), who was chairman of the House Judiciary Committee in 2005, on the eve of their final defeat. “It is not the disease. Some people do abuse the bankruptcy system, but the overwhelming majority of people in bankruptcy are in financial distress as a result of job loss, medical expense, divorce, or a combination of those causes.”

On the substance, Warren and her allies seem to have had the stronger case. There’s no argument that bankruptcy filings rose dramatically in the 1990s. But those who study bankruptcy say there’s little evidence, aside from the anecdotes that appeared in newspaper stories at the time, that fraud and abuse were rampant. In 1997, as McCollum and Boucher were introducing their bill, the Congressional Budget Office analyzed a Visa report on the rising bankruptcy rate. The report’s findings were, presumably, similar to what the company had presented to Torricelli and other lawmakers. Visa’s report was based on an “unsound” method that was “roundly condemned in the economics profession,” the CBO concluded. The CBO also raised questions about the reliability of the Purdue study Bentsen had cited in his Washington Times op-ed.

Warren had been recruited to serve as an adviser to a commission whose members were appointed by Bill Clinton, Congress and Supreme Court Chief Justice William Rehnquist that studied the country’s bankruptcy laws. The commission issued its report a month after Boucher and McCollum introduced their bill, and many of its recommendations ran counter to what the congressmen proposed. As the legislation that would become the bankruptcy bill started gaining support, Warren pushed back against the idea that the rising bankruptcy rate was a problem. “Those who want to say [that] 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,” she told the Washington Post in 1998.

That same year, Warren warned in an op-ed in the New York Times that some of the bill’s proposals would have a “devastating impact on the tens of thousands of women who turn to bankruptcy courts to collect alimony and child support from former husbands who have sought bankruptcy protection.” After it appeared, she met with Hillary Clinton, then the first lady, in Boston and helped persuade her to fight the bill. Clinton, in turn, pressed her husband to oppose the bill. When it passed Congress with Biden’s vote at the end of Bill Clinton’s presidency, Clinton pocket-vetoed it by not signing it before leaving office.

The lobbyists on the other side of the fight remember Warren as a formidable opponent, although some of them disdained her approach. Tassey, the lobbyist who led the coalition of credit card companies and other lenders, described Warren as “extremely skilled tactically” but accused her of making whatever arguments she needed to derail the bill. “She had no interest in compromise,” said Rubin, the former House Republican staffer who later lobbied in support of the bill. “She had no interest in trying to make the bill better. She just wanted to kill it.” Warren, who didn’t respond to an interview request for this article, waged war against the bill with the same uncompromising approach she brought to the Senate and on which she is running for the White House. She fought for what she believed in, and she lost.

After George W. Bush’s election, lobbyists began pushing for the bill again, so Warren wrote an article in the Harvard Women’s Law Journal castigating Biden in particular for supporting it. “Senator Biden supports legislation that will fall hardest on women, particularly on women trying to rear children on their own,” she wrote. “Why? The answer will have to come from him, if any reporter or constituent presses on this question. There is an unavoidable suspicion, however, that he supports the financial industry’s legislation because there is no political disadvantage to supporting it. Bankruptcy is sufficiently arcane, sufficiently obscure that it is possible for an otherwise respected legislator to support legislation that, over the next decade, will make it more difficult for millions of women to keep their homes, feed their children, and deal with bill collectors.”

Her anger at Biden didn’t abate after Bush signed the bill into law in 2005. In a post on her now-defunct “Warren Reports” blog — which is still accessible via the Internet Archive — not long afterward, Warren accused Biden of “twisting arms to get the bankruptcy bill through Congress.”

By the time the bankruptcy bill was close to becoming law, Biden’s rationale for supporting it seemed to have changed. He didn’t say anything on the Senate floor about weeding abuse out of the system. Instead, he bragged the bill “improves the situation of women and children who depend on child support.”

“There may be other aspects of this legislation that we can debate: the balance between creditors and debtors, between different kinds of creditors or between different kinds of debtors,” Biden said. “But on the question of child support and alimony, there should be no dispute.” (The bill forced divorced parents who file for bankruptcy to continue making their child support payments ahead of any others, except for those they were required to make to their bankruptcy trustee.)

Biden now says he supported the bill as a way to demand changes to legislation that was likely to pass the Republican-dominated Congress anyway. He pushed for “safe harbor” provisions for those who made less than the state median income and for beefed-up requirements for credit card companies to warn borrowers about high interest rates, in addition to the alimony and child-support provisions, according to Russo, his spokesman.

But those who study bankruptcy law say any good done by the provisions that Biden fought is far outweighed by the harm the rest of the law has caused. Yes, the bill forced some divorced parents to keep making child support payments. But it also made it harder for single parents — and everyone else — to file for bankruptcy.



***

Keira Spencer had thought about declaring bankruptcy for years. But Spencer, who’s now 30 and works for the city government in Tallahassee, Florida, was daunted by the cost of doing so: Between $900 and $2,000 to hire a lawyer to fill out the necessary paperwork. So she waited and fell further and further into debt. A car accident led to chronic back and neck pain and added unpaid medical bills to her credit card debt. She was evicted from her apartment and moved in with her aunt and uncle before finally filing for bankruptcy in January.

Bankruptcy scholars say situations like Spencer’s have grown more common since the bankruptcy bill passed. Among other changes that made it harder to file for bankruptcy, the bill added additional paperwork that took lawyers longer to fill out. Lawyers, in turn, started charging their clients more to help them file for bankruptcy, driving up the cost of a successful filing under Chapter 7 from $712 before the bill passed to $1,078 only two years later, according to a Government Accountability Office study. A University of Maine study published in 2012 found the cost had risen even further, to $1,300. The bill also requires those filing for bankruptcy to take a credit-counseling course first, even though such courses have “been proven to be completely worthless,” said Bob Lawless, a University of Illinois professor who studies bankruptcy and has worked with Warren.

People on the verge of bankruptcy must endure what scholars call the “sweatbox.” “People in the financial sweatbox are on the brink of defaulting on their debts, which is when their lenders can charge high interest rates and fees and otherwise profit from their customers’ financial misery,” the Indiana University law professor Pamela Foohey, Lawless and two other researchers wrote in a paper published last year. While lawmakers who advocated for the bankruptcy bill said they wanted to stop people with the ability to repay their debts from abusing the system, the bill “more often prevents honest, but unfortunate cannot-pay debtors from filing, while wealthier households enjoy unchanged access to bankruptcy,” they wrote.

Spencer filed for bankruptcy with the help of Upsolve, a nonprofit startup that’s sort of like TurboTax for bankruptcy. (Upsolve introduced POLITICO to Spencer.) The website helps people handle relatively simple bankruptcies without hiring a lawyer. Spencer had to only pay her $335 court fee. She would have filed for bankruptcy years earlier had it been cheaper to do so, she told me. Jonathan Petts, a former corporate bankruptcy lawyer who is one of the Upsolve’s founders, told me he’d started the nonprofit in response to the bill Biden voted for.

Not every scholar agrees that the bankruptcy bill was a bad idea. Todd Zywicki, a law professor at George Mason University who was a leading advocate for the bill as Warren was fighting it, told me, “The bill ended up doing exactly what those of us who supported it said it would do.” Bankruptcy filings fell. Zywicki defended the law’s changes as necessary to combat fraud and abuse. If debtors are required to do more to confirm their income and assets, “obviously it’s going to make it more difficult to file for bankruptcy,” he said.

The bankruptcy bill, Zywicki said, targeted “high-income people abusing the system.” But a National Bureau of Economic Research working paper published last year found the opposite. After the bill passed, economists Stefania Albanesi and Jaromir Nosal wrote in the paper, “bankruptcy filings have declined mostly for low-income, possibly liquidity-constrained individuals”—in other words, people who are likely to be too poor to file for bankruptcy. They didn’t find that the law had lowered the rate at which wealthy people filed for bankruptcy, Albanesi told me.

Biden was one of 18 Democratic senators to vote for the bankruptcy bill in 2005, but of the more than a dozen current and former members of Congress who are running or considering running for president, he is the only one who voted for it. Two other candidates — Sen. Bernie Sanders of Vermont and Washington Gov. Jay Inslee, both of whom were in the House at the time — voted against it. While Biden’s support for the bill is unlikely to torpedo his campaign by itself, it’s easy to imagine his rivals using it to help make the case that he’s too close to Washington lobbyists and Wall Street.

Before he tapped Biden as his running mate, Barack Obama criticized John McCain during the 2008 campaign for “siding with banking industry lobbyists” by voting for the bankruptcy bill. Sanders suggested in 2016 that Hillary Clinton had capitulated to the financial industry by voting for a version of the bill in 2001. (She didn’t vote on the 2005 bill.) And Warren herself has mused on how presidential candidates’ votes for the bill might be turned against them.

“For a decade, Orrin Hatch, Joe Biden, Jim Sensenbrenner, and dozens of others in Congress decried the state of bankruptcy laws that permitted people to take advantage of financial institutions,” Warren wrote in a 2008 post on Credit Slips, a bankruptcy law blog, after Tim Russert asked Clinton and Edwards about their votes for the bill during a Democratic presidential debate. “With a recession bearing down, the language of bankruptcy has shifted from ‘abusers’ who ‘take advantage of lenders’ to language of concern over the growing stress on hard-working families.” While voting for the bill had won senators the gratitude of lobbyists who write campaign checks, “that door swings both ways,” Warren went on. “Those who wanted to snuzzle with the lobbyists leave themselves vulnerable to counterattacks.”

“Back in 2005, there was supposed to be no political cost to voting for the bankruptcy bill,” Warren added. “Today, that seems to be changing.”

As an example, she cited Rep. Albert Wynn (D-Md.), who faced a primary challenge in 2008 from an opponent who attacked him over his vote for the bankruptcy bill, among other issues. Wynn lost in a landslide—then resigned to become a lobbyist.