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A new study has found that Blacks are twice as likely as whites to face more difficult and expensive forms of bankruptcy filings.
The study, "Race, Attorney Influence, and Bankruptcy Chapter Choice," authored by researchers from the University of Illinois and the University of Arizona, surveyed 2,400 households nationwide who filed for bankruptcy in 2007. The information gathered from the Consumer Bankruptcy Project, the most comprehensive catalog of filers currently available, found that bankruptcy lawyers were much more likely to steer Black debtors into a Chapter 13 bankruptcy than white filers of the identical financial situation.
Most debtors who file for bankruptcy file under Chapter 7 because they tend to have higher success rates, are less expensive than the alternative Chapter 13 and because the debtors are often relieved of their debts within a matter of months.
Chapter 13, on the other hand, requires debtors to dedicate their disposable income to paying back their debts for several years.
When the researchers adjusted for income, home ownership, assets and education, the racial disparity persisted suggesting that lawyers were disproportionately steering Blacks into a process that was not good for them financially.
“Unfortunately, I’m not surprised with these results,” Neil Ellington, executive vice president of Consumer Education Services, a credit counseling agency in Raleigh, N.C., tells the New York Times. “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 highlight a need for tough enforcement of anti-discriminatory bankruptcy laws.
The entirety of the research findings will be published in The Journal of Empirical Legal Studies later in the year.
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