ProPublica: The Bankruptcy System Fails Black Americans

It's been a busy day, but before I sign off for the evening, I would be remiss not to flag Paul Kiel's outstanding piece that came out this morning, How the Bankruptcy System is Failing Black Americans. ProPublica and The Atlantic co-published the article. An extensive data analysis also accompanies the article. Anyone who follows Credit Slips will want to read these pieces.

Kiel finds chapter 13 filings are about three times higher in predominately black zip codes as compared to predominately white zip codes. Of course, these findings very much parallel our earlier work, which I blogged about here back in 2012. Like our work, the disparities Kiel finds remain even after statistically controlling for financial and other variables that should determine chapter choice. Because chapter 13 is generally a more expensive choice than a chapter 7, requiring a payment plan that many debtors don't complete (and hence don't receive a discharge), the racial differences are troubling.

Where Kiel's article really shines are the interviews with the attorneys and bankruptcy debtors in Memphis, Tennessee. The interviews put faces and stories to the statistics that we can't do in academic studies. Check out Kiel's work.

Comments

[John Rogers]

I offer the following article as a rebuttal to Mr. Kiel. This article was not written by me, but by a bankruptcy practitioner who I greatly respect. I agree with her wholeheartedly.

http://www.bankruptcymastery.com/beyond-racism-self-interest-blacks-file-fail-chapter-13/

[Ben]

I too read the ProPublica piece and was impressed with its story-telling and the overall findings of the article. The author of the article posted in the above comment seems to take issue with the ProPublica piece by arguing that it would be foolish of an attorney to stake his/her ability to collect a fee on whether the payment plan set up in a Ch. 13 is completed. Because of this asserted obstacle to getting paid, she is skeptical of the role race plays in lawyers advising clients on which chapter is best for the client. Is it not the case in a normal Ch. 13 that the attorney's fee is paid in allotments from the payment plan each month? And aren't Ch. 13 filings generally more expensive than Ch. 7 petitions? If so, the lawyer getting paid in a Ch. 13 petition would not wholly depend on the debtor getting debt discharged (aka the client completing the payment plan), but instead on the clients ability to make enough payments to where the attorney can collect at least some of the fee. If this is the case, it may be that the client is able to make enough payments such that the lawyer is able to get more of a fee via a Ch. 13 than he would via a pre-pay Ch. 7. This would make the average duration of being in compliance with the payment plan the key financial consideration for the lawyer, and not necessarily whether or not the client completes it.

[Greg Taylor]

Kiel argues that clients filing Chapter 13 multiple times should be expected to generate more attorney fees compared to one Chapter 7 filing. Seems reasonable, especially if you consider additional future legal work that Ch 13 clients might be expected to generate.

[Anthony Goff]

What I understood, Greg, is that if you file for Ch 13, you will have to pay more over the time (for the same application) than if you have chosen to file for Ch 7.

"In Memphis, it typically costs around $1,000 to hire an attorney to file a Chapter 7, but most attorneys will file a Chapter 13 for no money down. Ultimately, the fees for Chapter 13 filings are higher — upwards of $3,000 — but the payments are stretched over time."

Please tell me if I got it wrong.