• 26
  • January
    2012

According to recent research by professors at the University of Illinois and the University of Arizona, black Americans are almost twice as likely to end up in Chapter 13 bankruptcy as whites. Even when the researchers adjusted for income, homeownership, assets and education, the difference still existed. Chapter 13 is known to be the more burdensome and costly form of personal bankruptcy

The evidence presented in the study seems to suggest that attorneys direct blacks to Chapter 13 bankruptcy, at least partly because of conscious or unconscious bias.

Changes to the federal bankruptcy code made in 2005 were aimed at forcing more debtors to file under Chapter 13 and repay at least some of their debts, but the changes-as is well known-have largely failed. Instead, the rate of Chapter 13 filings has remained relatively steady, staying around 30 percent.

Most debtors do, in fact, file for Chapter 7 bankruptcy, which allows them to have most of their debt discharged within months. It is less expensive than Chapter 13 bankruptcy, and tends to have a higher success rate. Chapter 13, on the other hand, requires the filer to utilize their disposable income to pay back their debt over a period of several years.

Part of the research involved a survey which found that bankruptcy attorneys were more likely to direct black debtors to a Chapter 13 filing than white filers, even where their financial situations were identical.

The researchers noted that the disparity is not due to any kind of overt discrimination, but simply to individual biases.

In our next post, we'll continue looking at this story.

Source: New York Times, "Blacks Face Bias in Bankruptcy, Study Suggests," Tara Bernard, January 20, 2012.