The Stark Facts of Race and Bankruptcy

Bob Lawless, Credit Slips, May 3, 2011

The Woodstock Institute in Chicago has a fantastic new report entitled, “Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County’s Communities of Color.” The results are ugly for anyone who believes in equal access to economic opportunities and justice.It should be required reading for anyone working with bankruptcy and credit. The basic findings from Cook County:

* Personal bankruptcies are concentrated in African-American communities

* African-Americans are much more likely to file chapter 13

* Women make up a larger share of individual bankruptcy filers, and a dramatically larger share in African-American communities, than men do

{snip}

The Chicago Reporter has published a story about the Woodstock report focusing on the disparity in chapter 13 filing rates between African Americans and all other races. Although only about one-third of all bankruptcies in Cook County are chapter 13’s, more than half of the bankruptcies by African Americans are chapter 13’s.

{snip} In a recent study with my colleague, Dov Cohen, we found the same racial disparity in chapter 13 filing rates not just in Cook County but across the country. In a national random sample of bankruptcy filers, Dov and I found that African Americans are around twice as likely to file chapter 13 than debtors of other races. This disparity remained even after controlling for factors such as home ownership or geographic location. An African American homeowner in a place with a high chapter 13 rate like Georgia or a low chapter 13 rate like Iowa is still twice as likely to file chapter 13 than a white homeowner in the same locale. Our study also controls for income and wealth, which should be a good proxy for ability to afford the attorney’s fee and court fees. {snip}

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  • Anonymous

    If you know what you are doing and are an unethical person, declaring bankruptcy is just legalized thievery.

  • lowkey

    “Blacks twice as likely as whites to file for bankruptcy even when incomes are the same.”

    This is just one of the problems created when a nation has a population of people who can’t add or subtract above an elementary level, with a large portion of them unable to do even that.

  • Seek

    Yes, Bob Lawless — facts are indeed ugly things. Hopefully, banks can take this information into account in making loan decisions, thus setting our nation’s financial house closer to solvency.

  • Question Diversity

    I am very much looking forward to reading the many anecdotes that AR regulars can provide about why this is so. I get the sneaking suspicion that the main thrust of these anecdotes will be that blacks tend to overspend on frivolities and misuse credit.

    The results are ugly for anyone who believes in equal access to economic opportunities and justice.

    I fail to see how any of this is relevant to “opportunities” and “justice.” Perhaps the Harrison Bergeron solution will be to force credit worthy white people with good credit ratings and history to file for bankruptcy, just to even out the stats.

    Women make up a larger share of individual bankruptcy filers, and a dramatically larger share in African-American communities, than men do

    That’s because black women are far more likely to be the heads of household financially speaking.

  • sbuffalonative

    If half of them can’t read, why would anyone expect them to be competent in math and personal finance?

  • thisain’tthe futureIplanned

    I don’t doubt that more women file for bankruptcy; women have been taught traditionally to serve others and bear the burdens silently, and have NOT been taught how to handle money and credit. No this has NOT changed, even with the improvement in women’s rights. It is a sad fact. And, since black women are much less well-educated than white women generally, it stands to reason they’d be in more trouble with bankruptcies. BK is a last resort; I used to be a legal secretary, and trust me, NO ONE wants to file a BK. It isn’t cheap, paradoxically; and your credit is screwed for a long time. I am not defending the practice of filing for bankruptcy just to get out of paying debts; they have closed a lot of former loopholes, and it’s no picnic today. ANSWER: get education, get education, and get education!!! Stay in school, postpone reproduction, and talk about credit with a financial planner. With economic times getting worse and worse, more people are going to be filing BK — so the responsibility is now, more than ever, on each individual to get the knowledge s/he needs to stay afloat money-wise. Get ready to do more with less. TAKE CARE OF YOURSELF. Tough times are coming and we all need to be ready.

  • rdc75

    From the original article:

    “It is certainly possible that the disparity could stem from subtle or institutional racism.”

    Just to make sure everybody understands who’s fault it really is when blacks do not pay back their loans.

  • Anonymous

    * Women make up a larger share of individual bankruptcy filers, and a dramatically larger share in African-American communities, than men do

    This doesn’t surprise me. During my banking career, I noticed that black women often take out loans for boyfriends and sons. The man quickly stops giving the woman money for payments, then she declares bankruptcy because she doesn’t want to pay off “his loan”.

    I tried to collect payments on a car loan to a middle-aged black woman with very generous disability payments, but she insisted I should only ask her boyfriend to pay, saying “the loan is really his”. Turns out she was the only person he knew with a steady reportable income (disability checks), so he conned her into buying a car for his use.

    He dumped her, ran off with the now uninsured car, and we couldn’t find it to repossess it until he wrecked it in a police chase! He was broke and unemployed, needless to say, and the woman declared bankruptcy to dump “his” debts that she borrowed on his behalf. The bank never recovered a penny.

    Lending to blacks is always more interesting than lending to whites!

  • white is right, black is whack

    Of course, it’s always whites’ fault why they fail, isn’t it? The Civil Rights Act has probably bankrupt or financially bled just about every white man on the face of this planet in the last 50 years with all the bogus claims of ‘discrimination.’ Thurmond was right when he said the civil rights bill would give too much power to the federal government and was just a way to tell businesses who they had to do business with. Any chance these laws will get overturned soon? Naaaaahhh. Have a better chance waiting for a flood.

  • chuck

    Is it true once bankruptcy is declared the ability to borrow money in the future is compromised? I wonder why banks continue to lend to this delinquent segment of the population? Really the fault lies with the banks and other lending institutions.

  • Anonymous

    Even poorly educated blacks can do well with money when it is strictly rationed on a short enough time scale that they can deal with only those -direct- expenditures that effect them within a period whose duration they can mentally encompass.

    Give a black (non drug addict, fully housed, non HOH) 100 dollars a week to buy food and pay for necessities and they can quite commonly come back with change.

    It’s when you start stretching out the pay intervals to biweekly and especially monthly levels that they suddenly seem to lose the ability to envision a paycheck fractionally as: rent, food, car payment, utility bill, garbage pickup and so on.

    We also need to be very careful how ‘hard’ we make these coming times for poor whites too as common sense can offer no purchase for sanity when you are starving and without resources because your skin is too pale (man, wife, three kids, tent in park).

    One poster mentioned a financial planner but if you are pulling in minimum wage, just the idea of going to an hourly-rate ‘advisor’ to tell you how to save the odd dollar or two by foregoing simple luxuries like cable is laughable.

    Blacks and by crime-rate extension, whites, have but ONE chance to survive what is coming and that is a return to massively offset dependent living in project like housing with wholesale-rate (food banks, whatever) food and services delivery as guarantees of living wage and very strict allocation limits on other spendable income.

    Anything less than this and you will see nation wide rioting at best and a complete break down in civil order more likely.

    We do not want to have a 300 million person race war without a separate state and military of our own to hunker-in-bunker hide in. Such a conflict will make WWII look like a playground fuss up.

  • Anonymous

    Lending to blacks is always more interesting than lending to whites!

    _________________________

    In my college days, before the Civil Rights Act changed everything, I sold encyclopedias. We did not sell to blacks, we didn’t even try. That was company policy. Of course we could have used the money! All dollars are green. So this had nothing to do with race or discrimination.

    But the company knew (no doubt from harsh experience) that blacks don’t pay their bills and that collecting would be a nightmare and more costly than it was worth. In fact, we knew that it was very easy to sell to blacks, but it was hell getting them to pay. (There was an exception allowed for military personnel in the rank of officers.)

  • I often find myself being jealous to those people who have the ability to have credit cards in their disposable. Ever since filing bankruptcy 2 years ago, I was left without any alternativesince I was not given a credit card. Not that I would want to have the ability to rake up obscene amount of credit card debt again, it is just a testament of my past erred ways, and the predicament that I have put myself in now. I envy those who have credit card and are able to purchase what they want, even if it is something as stupid as a train commuting ticket. Nowadays if I need to buy my monthly train ticket, I will bring $200 cash to the machine to buy my train ticket. I just missed the convenience of having a credit card at one’s disposable. But I certainly understand that it is only in my best interest not to have one since my past spending ways was the thing that put me into personal bankruptcy.