Bankruptcy Racial Disparities Poised to Add to Pandemic Pain (1)

The economic impacts of Covid-19, from job losses to business closures and relief measures, have disproportionately affected black Americans as much as the virus itself.

And if history is any guide, even the bankruptcy lifeline may be ill-equipped to give many of the pandemic-ravaged black debtors a fresh start.

Dozens of academic studies spanning more than three decades have concluded that black debtors file for bankruptcy disproportionately more than other racial groups, but get less permanent relief. A 2017 Analysis-co-written by now-US Rep. Katie Porter (D-Calif.) –found that black filers were half as likely as other groups to permanently eliminate their debt, regardless of the type of personal bankruptcy case they filed. Now, the disparate impacts fueled by the pandemic threaten to make relief even more difficult.

The United States Bankruptcy Code, while not overtly racial, “is designed to provide relief to people who fit a certain profile,” said Mechele Dickerson, professor at the University of Texas at Austin School of Law. and one of the first researchers on race and bankruptcy. This mostly benefits wealthy debtors in large homes, trusts or retirement accounts, Dickerson said, and economic data shows that “in most cases it won’t be black.”

While personal deposits have not increased, and in fact have fallen since the start of the pandemic, lawyers expect the reprieve to last only as long as government assistance. The National Consumer Law Center and the National Association of Consumer Bankruptcy Attorneys urge Congress to make immediate changes, Warning that the bankruptcy code has “not evolved to meet the needs of today’s consumers, or, more precisely, to cope with today’s global crises”.

Black unemployment rate was stuck at 14.6% in July, despite a drop for all other groups and a drop to 10.2% overall. Most black-owned businesses could not get relief through the paycheck protection program passed by Congress, because 95% of them have no employees. From February to April, 41% of black-owned businesses closed, compared to 17% of white companies.

Black households also tend to have far fewer resources to fall back on when they lose their jobs or experience unexpected medical expenses. the net value of a typical black family in 2016 was about one-tenth that of a typical white household. Since the second quarter by 2020, 47% of black families owned their homes, compared to 76% of white families.

Online by line Analysis of the bankruptcy code in 2004, and its revisions the following year Dickerson concluded that the “ideal debtor” was a married, employed landlord who supported only a few dependents. The code offered much less relief to a single person in a rental apartment, a grandparent raising a grandchild, or a recent graduate with student loans, she found.

“Bankruptcy is good for once, but not for those who are constantly in trouble,” Dickerson told Bloomberg Law.

” In the first line “

Some black debtors already in Chapter 13 restructuring plans are now struggling to maintain their monthly payments, bankruptcy lawyers say.

Lawyer Michael E. Doyel has two offices in St. Louis: one predominantly in White Sunset Hills, the other in Bridgeton, where blacks represent approximately 26% Population. He said there is no doubt that people are having a harder time.

“Covid hits everyone a lot, but it hits the African American community even more,” Doyel said. Among the clients he meets, “many of them have two or three jobs, and they may have lost two.”

April study According to Saint-Louis health authorities, predominantly black postal codes accounted for 34% of confirmed cases of Covid-19 in the city, although blacks make up 16% of the population.

One in six of all essential workers nationwide are black, making it difficult for them to work from home and putting them at increased risk of becoming ill.

Attorney Rochelle D. Stanton of Rochelle Stanton Law in St. Louis said that many of her black clients “tend to be on the front lines” of the pandemic as home health workers, nurses, health workers, health workers. support and service agents. Several have lost patients, fell ill with the virus or have been sent home to quarantine, she said. “And often when that happens, they’re sent home without pay. “

“No money down”

For years, studies have shown that the majority of black Americans seeking personal bankruptcy have chosen to restructure their debts under Chapter 13, rather than liquidate under Chapter 7, even though the latter is used more than twice. more often overall.

Chapter 13 is designed to save large assets like a house, car, or retirement account. It takes up to five years of court-supervised repayments that more than half of filers fail to complete, leaving them with continued debt after bankruptcy fails.

Chapter 7 is cheaper, easier, and faster, but debtors must give up all significant assets and pay all attorney fees up front. Almost all Chapter 7 applicants complete their files in approximately four months and permanently eliminate their debts.

“When you look at the national numbers, there’s no doubt something is going on,” said John Rao, an attorney at the National Consumer Law Center. “African Americans who have fewer assets and lower incomes file Chapter 13 at a higher rate than whites, and that doesn’t make sense.”

The U.S. Courts Administrative Office, the federal agency that handles bankruptcy cases, said it did not have information on why debtors choose different chapters, and that there are various reasons why a Chapter 13 bankruptcy could fail.

“Chapter 13 debtors are vulnerable to changes in life circumstances, such as job loss, divorce or an unforeseen emergency,” Charles Hall, spokesperson for the office, told Bloomberg Law. “There is no guaranteed path to success.”

One theory as to why black people use chapter 13 more often than other racial groups is that it may be a “no deposit” treat. Although a Chapter 13 costs nearly three times the amount of a Chapter 7, typically up to $ 3,300 or more in attorney fees, it allows a debtor to wrap the fees into a payment plan.

“There are examples of low-income people filing 13 returns who should file 7 returns, mainly because that’s how they can find the money to pay their lawyer,” Rao said.

No data

Other research suggests that debtors choose Chapter 13 to save assets that are not easily saved in Chapter 7.

In GeorgiaChapter 13 filings increase just before monthly foreclosure sales, indicating that filers can use it to save their home. Some lawyers say low-income filers use Chapter 13 as a way to refinance high-interest auto loans that they can’t refinance through banks.

In Chicago, after city authorities stepped up traffic enforcement, researchers found debtors with long journeys were using Chapter 13 to clear traffic fines and recover impounded cars for their non-payment of these fines. This is possible in chapter 13 but not in chapter 7.

Bankruptcy courts do not collect information on race or ethnicity on bankruptcy filings because the law does not require it. “There are no statistical reporting requirements related to race, ethnicity or any other demographic data,” Hall said.

Bankrupt researchers drew conclusions about race based on postal codes, census tracts, and last name algorithms.

the Final report of the American Bankruptcy Institute’s Commission on Consumer Bankruptcy, which devoted a chapter to racial justice in bankruptcy, recommended that Congress allow the collection of information on race and ethnicity as part of the petition process.

“Without such information, the disparate racial effects that we identify for blacks will undoubtedly be ignored,” said one. 2017 study by Sara Sternberg Greene of Duke Law, Parina Patel of Georgetown and Porter, then at the Irvine School of Law at the University of California. “Any effort to level the playing field for blacks and non-blacks would be complex, but without the data and the government’s responsibility to assess the situation, the facade continues that bankruptcy is racially neutral.”

Porter declined to comment for this article.

Persistent uncertainty

Since the start of the pandemic, moratoriums on evictions and foreclosures, mortgage forbearance, suspension of car foreclosures and wage foreclosures, and $ 600 a week in federal unemployment benefits have averted the worst.

In fact, personal bankruptcy filings fell 41% year-over-year for the second quarter of 2020. Chapter 13, which requires stable income to support payments, fell 61%, while Chapter 7 fell. by 29%.

People typically struggle financially for two to five years before resorting to bankruptcy, said Robert Lawless, a professor at the Illinois College of Law specializing in bankruptcy and consumer credit.

“Bankruptcy is a legal tool,” Lawless said. “It gets rid of your past debts. It doesn’t give you new money. It doesn’t give you a job.

The federal CARES law gave existing Chapter 13 debtors until March 27, 2021 to change their plans, with the option to extend their bankruptcy for up to two years to reduce monthly payments.

In St. Louis, the Chapter 13 trustee has allowed debtors to skip payments for up to three months in response to Covid-19 and has temporarily stopped filing dismissal motions.

So far, nearly 300 debtors have renegotiated mortgage payments with lenders and filed forbearance agreements with the court, said Dana C. McWay, clerk of the Missouri Eastern District Court.

Still, economic uncertainty makes many clients reluctant to change their plans, said Doyel, the local lawyer.

“We don’t know what to change it at, “he said.” If there is no money, you cannot reduce it to nothing.

(Adds a new second paragraph under the No Data subheading. An earlier version corrected the year to date in the fifth paragraph from the end.)

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