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A Deeper Dive into Racial Disparities in Chapter Choice and Women in Bankruptcy

posted by Geoff Smith

Thanks again to Bob Lawless for his excellent post this morning highlighting the findings from our latest report, “Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The report found evidence of racial disparities in chapter choice in Cook County, IL, as well as a disproportionately high concentration of filings among women living in communities of color. If you don’t have time to read the whole thing, check out our press release and policy brief.

If this report raised any burning questions, feel free to ask them on a conference call we will be hosting on Thursday at 11am CT (follow the link to register and get the call-in information).  If you’re shy, you can also send questions via Facebook or Twitter, and I’ll answer them on the call. I will be joined by Megan Cottrell of the Chicago Reporter.  The Reporter is an investigative magazine that published a companion piece to our report asking why these racial disparities in chapter choice might exist. I will also be joined by Woodstock Institute’s Policy and Communications Associate Katie Buitrago who will close out the call by telling the story of one bankruptcy filer, Roxie King, a grandmother of 20 from an African-American neighborhood in Chicago who went through Chapter 13 bankruptcy after being laid off from her job as an echocardiogram technician. Roxie tells her story in the video below:




Times headline: "World Ends, Women and Minorities Hardest Hit"

Oh, come on. Of course African-American women file for bankruptcy more than African-American men-- many more of them have (legitimate) income (and presumably assets); see


also see


You don't have to imagine any racism in the bankruptcy courts to explain the gender skew in filings, especially since the greater workforce participation and earnings attainment of African-American women makes them more creditworthy in the eyes of consumer and mortgage lenders, so commonly African-American women sign for loans to their households, leaving said women to file for bankruptcy if and when servicing household debts becomes too difficult.

As for why African-Americans file more often than Americans of other races, well, probably because they are more likely to take on debts they cannot service. Two reasons seem likely to explain much of that phenomenon: (1) greater variance in household income due to greater variance in African-American males' workforce participation (see http://www.econ.ucsb.edu/~kelly/mengap.pdf ); and (2) greater susceptibility of African-Americans to the blandishments of loan salesmen.

There is no general agreement on why African-Americans are more willing to take high-cost loans, but it is a generally-observed phenomenon. Multiple analyses of car loans and mortgage loans have shown that African-Americans sign for loans at higher interest rates than the ultimate lenders demand (based on objective criteria). The difference between what many African-Americans pay for their loans and what they could-have-paid (with a different shopping strategy) mainly supports higher sales commissions on their loans.

Since more-costly loans require higher payments, African-Americans may end up with less of a "cushion" between income and payment obligations to absorb fluctuations in income.

In the context of automobile-purchase loans, observers have hypothesized that African-Americans are less willing or less able to incur "search costs" such as shopping multiple car dealerships (many of which may be in the suburbs) to find better deals on "car+loan" packages.

For example, a few years back there was a big kerfluffle about African-Americans paying more for car-purchase loans than similarly-qualified White and Asian borrowers. When aggrieved borrowers sued Nissan for supposed discrimination, they conceded that Nissan's lending operation *had no knowledge of any borrower's race* (that datum simply wasn't included in any record available to the loan underwriters) and for each proposed loan, *offered a race-neutral minimum interest rate to a car dealer acting as a loan salesman.* Dealers then persuaded African-American car buyers to take out loans at higher rates than Nissan demanded, earning themselves higher commissions (based on the difference between the minimum rate and the up-sold rate).

See http://faculty.chicagobooth.edu/erik.hurst/research/car_rates_submission_v1.pdf for a detailed discussion.

(Naturally, the utterly blameless Nissan was forced to accept a settlement under which it agreed, inter-alia, to provide ONLY protected minorities with guaranteed-lowest interest rates on car loans, leaving dealers free to screw Whites and Asians if they could. How that comported with Federal anti-discrimination laws I cannot say.)

So the study was Cook County...Chicago right? Well in South Texas the majority of filers are Hispanic..Go figure..We are a majority down here. People of color always seem to be at or below the median. As for as single mothers filing..that's not too hard to understand. They usually have assets that they need to protect ie...their car. (got to get to work keep a house) even if they are below the median 13s save cars that you are behind on and 7s don't.

Divorce has to be in the top three of reasons to file BK. Our BK Judge made a comment before the Bankruptcy Abuse Prevention and Creditor Protection Act was enacted. Locally people are in 13s when they should be in 7s... Why? Mortgage Servicing abuses, lost jobs, wanting to keep a car, homes etc.. IRS (tapping 401ks to keep afloat)... Every individual case is a snowflake.

A GOOD REASON TO FILE 13 AS A RECENTLY DIVORCED WOMAN: When it comes to the splitting of debts via divorce decree....13 is the only thing that will hider an ex-spouse from enforcing the "indemnification" language when they do split Credit Cards in a Divorce... DIVORCE is probably the reason for the 13s!

But just the humble opinion of a BK legal assistant... Sorry it's not all technical....

PS. Just liked your FB page... Good stuff..

Your "policy brief" does not even mention a single policy, let alone examine any or suggest any policy changes.

All of your material is purely descriptive and tells us nothing which conventional wisdom would not have predicted.

While research of this sort is valuable even if it does not support any fresh insights into causative factors (since without this kind of work we would have no validation for our existing predictive models) these results seem unworthy of such an elaborate publicity package, including as you have shown a video, a summary, blog posts, and a vacuous "policy brief."

Rhadamanthus, we can’t begin to solve a problem unless we understand the scope of it. The body of research examining race and chapter choice and women in bankruptcy is still an emerging one, particularly on a local level. This report pinpoints where these trends are hitting hardest, down to the level of Chicago neighborhood or Cook County municipality. That level of specificity is particularly useful to policymakers, community groups, and financial institutions looking to allocate resources where the problem is most severe.

One of our goals is to engage a broad audience in a discussion of the implications of sometimes complex and obscure issues. The research product is one part of that, but when engaging an audience with diverse perspectives and levels of expertise, it has proven effective for us to use different channels of communications and create different types of materials. This might include conference calls, roundtables, videos, social media, blog entries, fact sheets, and policy briefs. Perhaps what we here labeled a “policy brief” would be more appropriately labeled a “fact sheet.” Does that make it any less vacuous ;)

After scanning the report it doesn't really seem to say much. The statistics presented give bankruptcy data based on the racial makeup of each area and an educated guess at the sex of each person. I don't see any economic data about each area. I presume that bankruptcy rates are be affected by people's relative wealth or poverty, levels of home ownership, relative changes in house prices (which strongly affects mortgage delinquency rates), etc. So the data presented doesn't indicate to what extent whether these differences are due to race or purely economic factors.

I also hope you aren't creating a problem by finding data to support racism. Using different figures, the change in bankruptcies by ethnic group, it could be argued that the situation of African Americans has improved over the past few years (or even reverse discrimination) since there was a much smaller rise in bankruptcies among strongly African American communities. Given enough data one can find whatever trend is desired.

While I don't feel any strong conclusions can be drawn from the numbers you present, I do agree with the final recommendations in the discussion. Vulnerability to scams is definitely a problem (though given Madoff and AAA subprime bonds, perhaps we need to worry more about the "experts"), and I agree with support for education and assistance in understanding financial issues.

I have had a peripheral connection with Habitat for Humanity in my area. They make sure that families receive financial education and help changing self-destructive habits before they can get a home so that a family doesn't move into a new home just to lose it by not knowing they have to pay the mortgage each month.

Some years ago when I lived near downtown Minneapolis a local bank branch would offer free seminars for area businesses on basic bookkeeping, etc. I talked to one banker who said educating these customers saved the bank money in addition to helping small businesses succeed.

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