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

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.