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Article re: Racial Bias in Bankruptcy Filing Selection
Dear Colleagues!
Please see the attached article listed below. This is a very shocking finding!
KEITH HIGGINBOTHAM
2012 cdcbaa President
Blacks Face Bias in Bankruptcy, StudySuggests
By TARASIEGEL BERNARD
Blacks are about twice as likely as whitesto wind up in the more onerous and costly form of consumer bankruptcy asthey try to dig out from their debts, a new study has found. Thedisparity persisted even when the researchers adjusted for income, homeownership,assets and education. The evidence suggested that lawyers were disproportionatelysteering blacks into a process that was not as good for them financially,in part because of biases, whether conscious or unconscious.
The vast majority of debtors file underChapter 7 of the bankruptcy code, which typically allows them to erasemost debts in a matter of months. It tends to have a higher success rateand is less expensive than the alternative, Chapter 13, which requiresdebtors to dedicate their disposable income to paying back their debtsfor several years.
The studyof racial differences in bankruptcyfilings was written by Robert M. Lawless, a bankruptcy expert and law professor,and Dov Cohen, a psychology professor, both with the University of Illinois;and Jean Braucher, a law professor at the University of Arizona.
A survey conducted as part of their researchfound that bankruptcy lawyers were much more likely to steer black debtorsinto a Chapter 13 than white filers even when they had identical financialsituations. The lawyers, the survey found, were also more likely to viewblacks as having good values when they expressed a preference for Chapter13. Unfortunately Im not surprised with these results,said Neil Ellington, executive vice president of Consumer Education Services,a credit counseling agency in Raleigh, N.C. The same underlying issuesthat created the problem in mortgagelending, with minorities paying higher interest rates than their whitecounterparts having the same loanqualifications, are present in all financial fields.
The findings, which will be published inThe Journal of Empirical Legal Studies later this year, did not suggestthat there was any obvious evidence of discrimination in the bankruptcyprocess. I dont think there is any overt conspiracy, Professor Lawlesssaid. But when you have a complex system, these biases can play out andthe people within the system dont see the pattern because nobody is incharge of looking at these big issues. Changes in the bankruptcylaw in 2005 were intended to force more debtors to file under Chapter 13and repay some of their debts, but that has not been the effect. In fact,the rate of Chapter 13 filings has remained relatively steady, at about30 percent. Last year, overall bankruptcy filings were 1.4 million.
Chapter 13 is not always an inferior choice.Many distressed borrowers go that route because they may be able to savetheir homes from foreclosure. But even that does not explain away the difference:among blacks who did not own their homes, the rate of filing for Chapter13 was still twice as high as the rate for other races. And the trend persistsacross the country, beyond regions like the South where Chapter 13 tendsto be a more popular option among all debtors (perhaps, in part, becauseChapter 13 originated in the South).
If a debtor chooses an inappropriate chapter,there can be serious implications. Chapter 13 plans, for instance, aremore likely to fail than a Chapter 7. Nearly two of every three Chapter13 plans are not completed, which means the filers remaining debts arenot discharged, leaving them right where they started. One bankruptcy judge,who sees filers once they can no longer make the required payments in theplans, said the debtors usually do not have enough income to stick withthe budget. They thought they could cut back on this or that,and you might be able to do that for three or four months, said the judge,C. Ray Mullins, chief judge for the United States Bankruptcy Court in theNorthern District of Georgia. tain things you cant anticipate a spike in gas prices.
The study has two parts. One used data fromactual bankruptcy cases from the Consumer Bankruptcy Project, the mostdetailed trove of information on filers currently available. The projectsurveyed 2,400 households nationwide who filed for bankruptcy in 2007. Results from the second part of the study, which illustrated thelawyers influence in determining which bankruptcy chapter to choose,came from a survey sent to lawyers asking them questions based on fictitiouscouples who were seeking bankruptcy protection. When the couple was namedReggie and Latisha, who attended an African Methodist Episcopal Church as opposed to a white couple, hurch the lawyers were more likely to recommenda Chapter 13, even though the two couples financial circumstances wereidentical.
Even though the attorneys fees for themore labor-intensive Chapter 13 are more than double the charge for a Chapter7, some truly distressed debtors will pursue a Chapter 13 anyway, severalbankruptcy experts said. That is because they can pay the fee over time,unlike in a Chapter 7, which typically requires a payment before the caseis filed. If blacks are perceived as less likely to have the resources or a family with resources t a Chapter 13, these experts suggested. But Professor Lawless said he and the other researchers accounted for thispossibility in their results. As to the possibility that unscrupulous attorneyscould push Chapter 13 filings in an attempt to get higher fees, ProfessorLawless said that effect should be apparent across all races.
He said the study has no information aboutwhether other players in the process judges and bankruptcy trustees,among others were contributing to the difference in filings rates. William E. Brewer Jr., president of the National Association of ConsumerBankruptcy Attorneys, and a practicing lawyer in Raleigh, N.C., disputedthe premise of the study that Chapter 13 was always more burdensome andalways required debtors to pay more to their creditors. The study doesnot adequately control for the numerous complex factors that dictate chapterchoice, he said. r discussion and self-reflection.
Other, more limited studies have also shownthe higher incidence of Chapter 13 among blacks. In Chicago, the WoodstockInstitute, a research and policy group, reported last May that in mostlyblack communities in Cook County, nearly half the cases from 2006 to 2010were filed under Chapter 13, compared with 32.8 percent of all cases filedin the county. For people of color, who historically have fewer assets,preservation of assets is a top priority, said Tom Feltner, vice presidentat Woodstock, who added that lawyers often have a financial incentive topush Chapter 13 filings. color can be explained by a combination of higherattorneys fees and a filers desire, or advice that elevates a filersdesire, to preserve as many assets as possible.
Henry E. Hildebrand III, who has servedas a Chapter 13 trustee in Tennessee for 30 years, said he had noticedthat blacks and other minorities appeared to be overrepresented in Chapter13 cases. We should focus not on picking apart the conclusions, Mr.Hildebrand said, but use this study as an indication that we should beattempting to fix what has become a complex, expensive, unproductive system.
Dear Colleagues!
Please see the attached article listed below. This is a very shocking finding!
KEITH HIGGINBOTHAM
2012 cdcbaa President
Blacks Face Bias in Bankruptcy, Study
Suggests
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