A new study reveals that African Americans are about twice as likely as whites to be directed into bankruptcy filings that do not benefit them, the New York Times reports. The disparity persisted even when researchers adjusted for income, homeownership, assets and education.
The study, which is titled "Race, Attorney, Influence, and Bankruptcy Chapter Choice" and will be published in the Journal of Empirical Legal Studies later this year, suggests that lawyers may be steering blacks into a generally harsher, often more expensive type of bankruptcy — Chapter 13 — than the far more common Chapter 7 because of conscious or unconscious biases.
In a Chapter 13 bankruptcy, the debtor must devote all of his or her disposable income to paying back debts over a three- to five-year period. Chapter 7, by contrast, usually allows filers to erase all of their debt within months and has a higher success rate.
According to the study, lawyers were more likely to steer African Americans into Chapter 13 bankruptcy while recommending Chapter 7 for white clients, even those with similar or identical financial histories. The lawyers were also more likely to describe blacks as having "good values" when they expressed a preference for Chapter 13.
"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., told 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."
"I don't think there is any overt conspiracy," study co-author Robert W. Lawless, a professor at the University of Illinois, told the New York Times. "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."
The Times article notes that Chapter 7 isn't always the preferred option. Chapter 13, for example, may be able to help borrowers avoid foreclosure on their homes. However, in the study, black people who were not homeowners were still twice as likely to file Chapter 13.
Read more at the New York Times.