Bankruptcy filings lack racial information, making it challenging to categorize rates by ethnic group definitively. Nonetheless, researchers have explored alternative approaches to analyze bankruptcy statistics across different racial demographics. A notable 2017 study by ProPublica highlighted that individuals residing in predominantly Black areas had higher rates of bankruptcy filings compared to those in predominantly White neighborhoods per capita. This study also uncovered significant disparities in the types of bankruptcy filed by different racial groups and their success rates post-bankruptcy. Similar findings have been echoed by other researchers.
What Bankruptcy Researchers Have Found
In lieu of explicit racial data in bankruptcy filings, ProPublica compared aggregated data from majority-Black and majority-White non-Hispanic ZIP codes.
Analysis of the most prevalent bankruptcy types, Chapter 7 and Chapter 13, revealed that individuals in Black neighborhoods were significantly more inclined to file under Chapter 13, which poses lower odds of debt discharge compared to the relatively easier Chapter 7 path.
Furthermore, the study indicated stark differences in successful emergence from bankruptcy via Chapter 13 between Black and White ZIP codes, with only 39% of filers in Black areas discharging their debts successfully, contrasting with a 58% success rate in White areas.
A recent study noted that Black filers face higher chances of bankruptcy case dismissal without debt relief, particularly in Chapters 13 and 7.
Understanding Bankruptcy Filing Types
While a debtor’s race isn’t identified in public records, ProPublica used ZIP code data to unveil startling racial disparities in bankruptcy filings.
Chapter 7 bankruptcy, known as “liquidation,” involves selling a debtor’s non-exempt assets to pay creditors, often resulting in discharged debts, excluding certain obligations like alimony and taxes.
Chapter 13, termed a “reorganization,” allows debtors to retain assets while adhering to a court-approved repayment plan over several years, safeguarding possessions like homes from liquidation.
Chapter 13 provides protection for debtors’ assets, such as homes and cars, which might be at risk in Chapter 7 filings.
Among the bankruptcy choices available, Chapter 7 is more straightforward and economical, swiftly alleviating debt burdens.
Why Chapter 13 Is More Common in Black ZIP Codes
Researchers have investigated the prevalence of Chapter 13 bankruptcy in Black neighborhoods, speculating that it may stem from affordability factors and the need to retain a car for vital activities.
ProPublica’s study highlighted cost differentials, noting that Chapter 13 provided a feasible upfront fee structure compared to Chapter 7, enhancing accessibility for debtors in Black communities.
Additionally, unpaid court debts in certain states lead to license suspensions, creating a need for asset protection through Chapter 13 filings.
Chapter 13’s advantages, like asset retention and asset return post-seizure, appear more appealing to individuals in Black neighborhoods, according to a recent study.
The need for reliable transportation, particularly in Black communities, likely influences the higher prevalence of Chapter 13 filings as noted by experts.
How Did ProPublica Conduct Its Bankruptcy Study?
ProPublica conducted its study using national bankruptcy data from the US Courts Administrative Office, focusing on Chapter 7 and 13 cases from 2008 to 2010 for consumer cases.
Can Individuals File for Chapter 11 Bankruptcy?
While commonly associated with businesses, individuals may resort to Chapter 11 bankruptcy if Chapter 13 isn’t viable due to excessive debts or insufficient income.
Can You Keep Your Car if You File for Bankruptcy?
Retaining a car post-bankruptcy hinges on the chosen bankruptcy type, state laws, and car ownership status. In Chapter 13, meeting repayment obligations typically allows vehicle retention.
The Bottom Line
Disparities persist in bankruptcy filing patterns between Black and White Americans, impacting outcomes and bankruptcy types chosen. The decision-making process appears influenced by factors such as legal costs and the necessity of maintaining transportation in Black communities.