Study Suggests Racial Bias in Bankruptcy Filings

An empirical study by professors Robert M. Lawless, Dov Cohen, and Jean Braucher has found that the U.S. bankruptcy system (in particular, lawyers representing debtors) appears biased against African-American debtors. Last Friday, the New York Times reported on the study in an article entitled "Blacks Face Bias in Bankruptcy, Study Suggests." A particular concern is that whites with certain financial characteristics are directed by lawyers toward chapter 7, while similarly situated African-Americans are directed toward chapter 13. The Times explains:

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. ... 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.

One of the study's authors, University of Arizona law professor Jean Braucher, says at Credit Slips that the Times article describes the problem, but doesn't really deal with solutions. Her Credit Slips piece discusses possible solutions, noting that her study suggested

(1) that a question about race of the debtor should be included on the form for a bankruptcy petition to make it possible to confirm (or disprove) the finding that African Americans file in chapter 13 at a much higher rate than debtors of other races (about double in the data we have), and (2) that all actors in the bankruptcy system—judges, trustees, attorneys and clients—be educated about the apparent racial disparity and the possibility that subtle racial bias may be producing it.

Those of you anxious to read the entire Lawless/Cohen/Braucher study -- called "Race, Attorney Influence, and Bankruptcy Chapter Choice" -- should look for it in a forthcoming issue of the Journal of Empirical Legal Studies. The SSRN link for the article is currently broken; I'll post the article, when I get it.

UPDATE: Bob Lawless contacted me and provided the SSRN link to the study. And, while I'm updating, here's the abstract:

We report on racially disparate uses of chapter 13 bankruptcy. Currently, approximately 1,500,000 bankruptcy petitions are filed each year, with about 30% of those petitions being chapter 13 cases. Although chapter 13 can offer some legal advantages for persons seeking to protect valuable assets such as a house or automobile, it generally offers less relief and costs more than the primary alternative available to consumers, chapter 7. The chief feature of a chapter 13 bankruptcy case is a plan under which the debtor must devote all of his or her disposable income to creditor repayment over a 3- to 5-year period. Chapter 7, in contrast, requires only that the debtor turn over all nonexempt assets, with over 90% of chapter 7 debtors having no assets to turn over.  This paper reports on two studies, one using data from actual bankruptcy cases and the other involving an experiment with a national random sample of bankruptcy attorneys. Because the court system does not collect racial data on bankruptcy filers, the first study uses data from the Consumer Bankruptcy Project. Even after controlling for financial, demographic, and legal factors that might favor a chapter 13 filing, African Americans are much more likely to file chapter 13, as compared to debtors of other races. The second study reports on an experimental vignette sent to a random sample of consumer bankruptcy attorneys who represented debtors. The attorneys were more likely to recommend chapter 13 when the hypothetical debtors were a couple named “Reggie & Latisha,” who attended an African Methodist Episcopal Church, as compared to a couple named “Todd & Allison,” who attended a United Methodist Church. Also, attorneys viewed “Reggie & Latisha” as having better values and being more competent when they expressed a preference for chapter 13 as compared to “Todd & Allison,” who were seen as having better values and being more competent when they wanted to file chapter 7, giving them a “fresh start.” Previous research and the results from the present experimental vignette study suggest consumer bankruptcy attorneys may be playing a very important, although likely unintentional, role in creating the racial disparity in chapter choice. Together, the two studies raise questions about the fairness of the bankruptcy system.

 

Comments

[california bankruptcy]

Filing for bankruptcy is a big step. But, it can be just what you need to do. Or, maybe, it's the last thing you should be considering.

[illinois bankruptcy attorneys]

Thanks for sharing this great info...Really helping me a lot.The writers of the bankruptcy code made it so that help is available in almost every scenario you can imagine.

[free lance writing jobs]

Thank your for your post. But I'm not sure what really is going on here.

[Bob Lawless]

Brian, thanks for your post. I am not sure what is going on with the link at the NY Times or SSRN proper (they worked for me). In any event, URL for the SSRN page is here: http://ssrn.com/abstract=1989039.