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Circumstances, Not Race, Should Influence Bankruptcy Chapter Choices

Most New York bankruptcy debtors choose to file in chapter 7 or chapter 13 because Congress designed them to fit most consumer debtors’ circumstances. What motivates debtors to choose one chapter over another is a matter of debate, but a recent paper on bankruptcy debtors has found that aside from their financial circumstances, their races—and possibly their attorneys—influence what chapter they choose to file in. The paper found that black debtors are more likely to file in chapter 13 and white debtors are more likely to file in chapter 7 than their respective financial positions would otherwise warrant. The authors conclude that implicit racial biases may motivate bankruptcy attorneys to encourage their clients to file in chapters that might not be right for them.

The paper contains two studies: the first an empirical measure of chapter choice by race and the second an experiment to illuminate bankruptcy lawyers’ beliefs as to which chapters their clients should file in.

The first study draws data from the Consumer Bankruptcy Project, a random survey of nearly 2,500 bankruptcy petitioners that was conducted in 2007 and determined debtors’ races and reasons for filing bankruptcy. Before comparing debtors by their races against their economic circumstances, the authors promptly found that black debtors were twice as likely to file in chapter 13 as debtors of other racial groups—54 percent. But even after conducting their statistical analysis of the data, they found that black debtors were about 2.5 times as likely to file in chapter 13 as one would expect.

The authors ruled out the possibility that black debtors’ chapter 13 plans were lighter than others’ because it appeared their plans were stricter than the norm. The authors leave open the possibility that black debtors choose chapter 13 out of moral obligation to repay one’s debts, but that didn’t exclude the possibility that their lawyers were guiding them to that chapter. Thus, the authors gave a questionnaire containing hypothetical debtors to 262 lawyers. The debtors either had subtle racially identifying information like their names, or they did not. The authors found that the lawyers recommended that 47 percent of the black debtors file in chapter 13. For debtors without an identifiable race, the chapter 13 recommendation fell to 36 percent, but the lawyers only encouraged 32 percent of white debtors to take chapter 13.

It’s pretty clear that bankruptcy lawyers’ biases affect their judgment, and the stakes are fairly high. Chapter 13 is costlier for debtors and takes much longer than chapter 7. The paper’s authors are clear that other participants in the bankruptcy system can play a role, e.g. judges and trustees, but if the findings are true, then many debtors may be filing in chapters that aren’t suitable for them.

The paper can be found here.

If you are encountering financial difficulties, then talking to an experienced New York bankruptcy lawyer can help you assess your options—based on your financial circumstances and nothing else.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy trustee Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

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