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Post-Racial Update: Racial Bias Negatively Impacts Blacks in Bankruptcy Filings

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Oh gee; I have some more systemic racism to tell you about. Apparently there’s a study just released that suggests that Black folks are negatively impacted by racial bias when it comes to filing for bankruptcy. Not surprising, really; especially when you consider that it costs more to be Black in America than it is to be white. I know, I know – some of you are tired of my racially divisive untruths; but, don’t hate me, hate The New York Times. I’m just glad there’s a Consumer Protection Agency set up via the Dodd-Frank Financial Reform Act that the GOP hates, to deal with this madness:

Blacks are about twice as likely as whites to wind up in the more onerous and costly form of consumer bankruptcy as they try to dig out from their debts, a new study has found.

The disparity persisted even when the researchers adjusted for income, homeownership, assets and education. The evidence suggested that lawyers were disproportionately steering 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 under Chapter 7 of the bankruptcy code, which typically allows them to erase most debts in a matter of months. It tends to have a higher success rate and is less expensive than the alternative, Chapter 13, which requires debtors to dedicate their disposable income to paying back their debts for several years.

The study of racial differences in bankruptcy filings 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 research found that bankruptcy lawyers were much more likely to steer black debtors into a Chapter 13 than white filers even when they had identical financial situations. The lawyers, the survey found, were also more likely to view blacks as having “good values” when they expressed a preference for Chapter 13.

“Unfortunately I’m 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 issues that created the problem in mortgage lending, with minorities paying higher interest rates than their white counterparts having the same loan qualifications, are present in all financial fields.”

The findings, which will be published in The Journal of Empirical Legal Studies later this year, did not suggest that there was any obvious evidence of discrimination in the bankruptcy process. “I don’t think there is any overt conspiracy,” Professor Lawless said. “But when you have a complex system, these biases can play out and the people within the system don’t see the pattern because nobody is in charge of looking at these big issues.”

[…] Chapter 13 is not always an inferior choice. Many distressed borrowers go that route because they may be able to save their 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 Chapter 13 was still twice as high as the rate for other races. And the trend persists across the country, beyond regions like the South where Chapter 13 tends to be a more popular option among all debtors (perhaps, in part, because Chapter 13 originated in the South).

If a debtor chooses an inappropriate chapter, there can be serious implications. Chapter 13 plans, for instance, are more likely to fail than a Chapter 7. Nearly two of every three Chapter 13 plans are not completed, which means the filers’ remaining debts are not discharged, leaving them right where they started. One bankruptcy judge, who sees filers once they can no longer make the required payments in the plans, said the debtors usually do not have enough income to stick with the 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 the Northern District of Georgia. “But in a Chapter 13, it will be either three or five years. There are certain things you can’t anticipate — a spike in gas prices.”

Now I don’t have to tell you about the largest  raping of Black folks since the Middle Passage by the financial industry just how much wealth that was lost in the Black community given our most recent financial meltdown. If it wasn’t foreclosures driven mostly by predatory lending. It was the subsequent fallout as unemployment rates rose to historical levels. Having said that, can you imagine the number of Black folks who at this point are being screwed even as they try to recover financially by filing bankruptcy? I know the whole “screw me twice shame on me,” thingy. But  what’s a Black person to do when the system is conveniently designed to give them the perpetual no Vaseline treatment in America? What can you do besides staying Black, and being part of the political process to fight inequalities until dying. Got any other answers, be sure to let me know.

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Published on: February 2, 2012

Filled Under: Uncategorized

Views: 562

  • LearnSumfinn

    Wow. You claim racism because Bankruptcy lawyers steer more blacks statistically to chapter 13 rather than 7.  Yet you obviously do not know the difference or why that would be as evidenced by your posting a slew of disconnected qoutes that dont even touch on what the differences in chapters are.    Are you trying to say that a lot of lawyers are racist and there are no minority lawyers?    You probably should find out what you are writing about and include that in your articles premise next time.  

     Chapter 13 has several complex advantages over Chapter 7, such as you can structure your Chapter 13 to let you keep property that the Court would sell in a Chapter 7, and you can get rid of certain types of debts that cannot be discharged by a Chapter 7Read more:

    Chapter 13 bankruptcy:You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.  Chapter 7 you forfeit the car and house. You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can’t stop incurring new debt.  – YOU CAN FILE 7 LATER.

    You filed a Chapter 7 bankruptcy within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

    The sun is hot, know why? It’s racist.

    • RiPPa

      So, can you explain just how said racial bias as identified by the report positively impacts Black people? Because given the disparities, as explained, I don’t see how it does if white people are encouraged and assisted in wiping their slates clean, as opposed to Black people. Am I reading the report wrong?

      I can’t wait for an answer….

      • LearnSumfinn

        Like I said, read up on what chapter 7 versus 13 entails. You are asking me to explain it all over again with the premise that it is based on bias when that premise is false.    Anyway, to try again look at it this way, lat on mortgage, late on car have other property chapter 13 allows you to keep them and restructure. If that doesnt work out they you can file chapter 7.    If you file chapter 7 and just give up from the getgo they take the car , the house, any other considerable assets, property, cash over I think 3k everything, you lose it all then you can file chapter 7 and cannot file again for I think 10 years.  So someone was trying to help them not lose all eqiuity in their house and car with chapter 7 from the getgo.   A lawyer could care less, he gets paid wether you file the complicated 13 that you claim is racist or the simple 7. Again 7 means you have no assets, no property and no cash over 3k.

        • Anonymous

           I am curious, because you have failed in my opinion to address what is the reasoning behind the disparity in filing between black homeowners and white homeowners?

           I could be wrong, but this is no different then how many blacks with the same or better credit score than their white counterparts were steered into sub prime and many other more hideous loans than were needed. Racism might not be the answer, but I am curious as to how you explain the disparities. If Chapter 13 is so much better, why are whites not steered to them as often as blacks? There must be some reason for this disparities, and if it has nothing to do with race, I am curious on what you think the reason for this is.