Study Finds That African-Americans Face Discrimination in Bankruptcy

Amsterdam News reported that many African-Americans have been treated unfairly by bankruptcy attorneys. (Photo by Justin Chan)

African-Americans are more likely than whites to experience racial discrimination when filing for bankruptcy, Amsterdam News reported.

According to a recent study conducted by two professors from the University of Illinois and another from the University of Arizona, a substantial portion of African-Americans who filed bankruptcy petitions last year were told by attorneys to file for Chapter 13 bankruptcy, instead of Chapter 7 bankruptcy, even though the latter is generally less expensive and less complicated.

The key component of a Chapter 13 bankruptcy filing and the subsequent proceeding is that a consumer’s debt is restructured so that a significant portion of their disposable income goes toward repaying a portion of the outstanding debt—including outstanding attorney fees and legal bills—for three to five years. In contrast, under a Chapter 7 filing, a consumer’s debts are essentially written off or discharged and a person can walk out of court virtually debt free.

Although the total number of people who filed for federal bankruptcy protection decreased last year, the study, titled “Race, Attorney Influence, and Bankruptcy Chapter Choice,” pointed out that lawyers are twice as likely to recommend African-Americans to file Chapter 13 bankruptcy than whites. Unfair financial practices, the article says, are nothing new.

Add to the mix similar discriminatory and questionable practices in mortgage financing, predatory lending and higher interest rates on credit cards and consumer loans for minorities, all of which have all come under fire from various sources in recent months, and it should come as little surprise that bias in bankruptcy proceedings exists.

A representative from an organization of bankruptcy lawyers said that members of his profession try their best to serve their clients’ interests.

“We have always favored a direct and unflinching examination of the bankruptcy process in America and believe in fair play; we have no reservations about having tough questions posed about the practices of debtor’s attorneys,” said William Brewer, president of the National Association of Consumer Bankruptcy Attorneys in Washington, D.C.

“If fuller research indicated that there is an unfair disparity in how Americans are handled in bankruptcy, we will be the first party in line to propose necessary changes, remedy any such imbalance,” he added.

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