Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 13 bankruptcy?”
A recent article in Bloomberg discussed something that many people may not be aware of: racial bias may play a role in something as mundane as bankruptcy filings. How does race impact bankruptcy? According to several studies, minority groups, specifically African American debtors, are vastly more likely to be steered to Chapter 13 rather than Chapter 7 bankruptcy protection.
First of all, what have studies said about the issue? One recent study on the subject, conducted by professors at the University of Illinois, found that blacks are more than twice as likely as whites to file for Chapter 13 bankruptcy protection. The researchers say that they made sure to adjust for things like income, homeownership, assets and education. In every case black people were vastly more likely to file for Chapter 13 than white people. In fact, the study found that nearly 55 percent of black filers chose Chapter 13 as opposed to only 28 percent of whites, 24 percent of Asians and 21 percent of Hispanics.
What’s the problem? After all, bankruptcy is bankruptcy, right? Wrong. Chapter 13 and Chapter 7 are two very effective, though very different tools and are not interchangeable. Though each can be a good choice for some people, it requires some careful thought before selecting a path. The problem with Chapter 13 is that it involves creating and sticking with a repayment plan. These plans last years (between 3 and 5) and can be burdensome on debtors who are stuck making monthly payments rather than quickly escaping their debt. Chapter 13 plans are likely to fail because of this, putting debtors back into the same financial mess they started with. Chapter 7, on the other hand, allows for a speedy resolution to the financial distress, quickly liquidating assets and eliminating debts.
What are the possible reasons for the difference? Is it that judges or lawyers or bankruptcy trustees are forcing Chapter 13 on black filers while sparing whites? Not according to the experts. The reasons are complex and likely involve multiple competing factors. One possibility raised by some is that fees are greater under Chapter 13, meaning lawyers stand to earn more by pushing clients down that path. That said, this shouldn’t result in a discriminatory impact, if anything, unscrupulous lawyers would be pushing all their clients into Chapter 13, not just one group.
Another idea proposed by some experts is that black people are eager to retain assets, particularly homes, and can be more convinced that Chapter 13 is the right approach for them. The desire to preserve assets can sometimes blind filers to other concerns, such as an income too low to make a Chapter 13 repayment plan successful in the long run. This too is debatable given that the study accounted for homeownership rates. Even among those without a home, black people are far more likely to file for Chapter 13 protection.
Does that mean there’s never a time where Chapter 13 is appropriate? Absolutely there is. Don’t mistake this as advice to only consider filing Chapter 7. In some cases, where you have assets worth protecting or where your income won’t allow filing Chapter 7, Chapter 13 can be a great idea. The problem, at least according to those behind the recently published studies, is that minority groups appear to be more likely than others to be steered towards a generally less advantageous form of bankruptcy protection.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
See Our Related Video from our YouTube channel:
See Our Related Blog Posts: