Study Suggests Blacks Face Bias When Filing for Bankruptcy

Blacks encouraged to file for Chapter 13!

A survey conducted as part of study of racial difference in bankruptcy filings found that bankruptcy lawyers were much more likely to steer black debtors into filing for Chapter 13  (the more costly form of consumer bankruptcy) than white filers in the same financial situations because of biases, whether conscious or unconscious. Even when researchers adjusted for income, homeownership, assets and education the disparity persisted.

Chapter 7 v. Chapter 13

The vast majority of debtors file under Chapter 7, which typically allows them to erase most debts in a matter of months, has 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.

Same Underlying Issues that Led to the Housing Crash

“Unfortunately I’m not surprised with these results,” said Neil Ellington. Ellington is an 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.”

“I don’t think there is any overt conspiracy,” Professor Lawless said, one of the study writers. “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.”

Study Writers

The study was written by Robert M. Lawless, a bankruptcy expert and law professor and Dov Cohen, a psychology professor. Both are with the University of Illinois. The third writer, Jean Braucher, is a law professor at the University of Arizona. The findings will be published in The Journal of Empirical Legal Studies later this year.