New Study Finds Racial Disparity In Bankruptcy Filings

A new study indicates that there is a racial disparity in bankruptcy filings, with blacks being twice as likely to file a Chapter 13 bankruptcy as white debtors with similar financial circumstances.
The report, authored by two law professors and a psychology professor, found some bankruptcy attorneys directed black clients to file Chapter 13 more than they directed white, Asian or Hispanic clients with identical economic situations.

The study found no overt indication that this was done intentionally, but may have been inadvertently caused by multiple factors that the study could not determine with any precision.

Chapter 13 vs. Chapter 7

In a Chapter 13, there is a plan that uses the debtor’s disposable income to pay a portion of their debts over a three or five year period. The advantage of the Chapter 13 is that it allows a debtor the ability to protect secured debt (a home or car) while paying a smaller percentage of unsecured debt (credit card).
Chapter 7, allows a debtor to discharge all of their unsecured debt, and typically, they have no secured assets they intend to keep (90 percent of Chapter 7s are “no asset”). Chapter 7 has a “means test” to determine the eligibility.

The study cautions that it has only found the symptoms, and could not isolate a “cause” of the racial gap. It strongly suggests that all parties involved, clients, attorneys, judges, and trustees should be aware of this situation. You can hire trust lawyers from here!
The racial gap also highlights the need to carefully consider all of the differences when filing bankruptcy. The choice between a Chapter 7 and a Chapter 13 filing is very complex. The number of variables is limited only by the number of clients.

Ask Questions to be Certain You Understand

Clients should ask their bankruptcy attorney to explain the differences, advantages and disadvantages of each chapter. It is important to understand how they are different. For example, Chapter 7 requires the use of a means test while Chapter 13 does not.

Chapter 13’s plans last three or five years, so a debtor must have the discipline and ability to budget their income for the long-term. Chapter 7 bankruptcies are typically completed within six-months, but once receive your discharge, you cannot refile another Chapter 7 for seven years.

In order to choose the chapter that is best for you, you need to evaluate all aspects of your economic condition; your job and it’s stability, if you own a home or rent, if you have a car, the age of the car, the reasons for financial problems (job loss, medical issues, overspending), the need for new credit, and any other factors that affect your financial circumstances.

Source: “Blacks Face Bias in Bankruptcy, Study Suggests”, New York Times, 1/20/12

Chapter 7 and lien stripping your second mortgage

As a general premise, in bankruptcy, a secured creditor is only secured to the extent that their security or collateral has value equal to or greater than the ‘secured’ debt. For many years that very basic bankruptcy premise applied to anything and everything except your primary residence, your homestead.

In May of 2012, in the case of In Re McNeal the 11th Circuit ruled that in a chapter 7 case, a Debtor – Homeowner could value their homestead property and in turn, if the second mortgage lien were fully and totally unsecured (the value of the property is less than the amount of the debt) the second mortgage lien is removed (‘stripped’) from the property and the entire debt or financial obligation discharged.

Up until the McNeal decision, junior mortgage liens could only be stripped in Chapter 13 cases which meant some portion of the second mortgage would be repaid as a general unsecured debt under the Chapter 13 Plan.
This is an incredible benefit to a consumer debtor whose home has declined in value as a result of the Recession or for any other reason. It gives new and significant meaning to the term ‘Fresh Start’ and allows the Debtor(s) to retain their homestead and discharge debt which would certainly strain the budget of a newly discharged Debtor.

The real practical significance for the Debtor – Homeowner is that once they strip the junior lien off the property, it becomes significantly easier to seek and obtain a mortgage loan modification because the income which would be dedicated to paying the second mortgage is now free to make it easier to pay a modified first mortgage.

If you are considering the filing of a Chapter 7 or even a Chapter 13 bankruptcy, you certainly want to make certain that your counsel and you discuss this possibility and investigate homestead property values as it pertains to this issue.

The McIntyre Firm has extensive experience with lien stripping junior mortgage debt as well as all the other nuances and subtleties of filing a consumer bankruptcy in this economic environment. Our Mortgage Modification Department has had tremendous success in modifying payment terms, reducing principal balances and helping homeowners retain their single most valuable asset, their Home.

My Chapter 7 Trustee

Everything has been compiled and completed and my Chapter 7 case is being filed tomorrow. I have filled out the schedules with all of my income, expenses, assets and liabilities. I have given copies of my last 6 months pay stubs, two years tax returns and 6 months of my bank statements to my attorney. While I wait for my lawyer to provide me with the case number I think about what my Chapter 7 Trustee will do.

My Trustee is appointed from a pool by the Office of The United Trustee. The Trustee will be paid a fee upon the completion and closure of the case. If, during the administration of the case the trustee finds a non-exempt asset and after a hearing, sells it, an additional fee will be earned by the Trustee. All fees paid to Trustees are regulated and reviewed by the Court.

My Section 341 Creditor’s Meeting is about 30 days away. During that time the Trustee will look over and review my Petition, Schedules, Statement of Financial Affairs and all of the financial documents I provided my lawyer. During the review, the Trustee may find something of interest and ask my lawyer for additional documents. The Trustee is not a Judge.

The §341 Creditor’s Meeting building is adjacent to the Courthouse. I am told to go early, parking is challenging. The building is a secure federal facility, metal detectors, armed guards and U.S. Marshals, so I only bring my identification and essentials. There are usually several rooms with bankruptcy meetings going on.
I find and speak with my lawyer for a few moments and have a seat and wait for them to call my case. When called my lawyer and I sit at the table and I get sworn in to tell the truth. I show the Trustee my Florida Driver’s License and answer a series of questions starting with my name address, social security number and maybe my date of birth.
Do I own any real estate? Do I own any precious metals, gems, jewelry or diamonds? Any valuable collections? Coin, card, stamp or original work of art? Have I been injured in an accident? Do I expect to be able to sue anyone for anything? Am I owed money? Am I entitled to a tax refund? Do I have a safe deposit box? Has any family member passed away and do I expect to inherit any money? In the last year have I transferred anything of value to a friend or family member? Is anyone holding any property for me? The list is long but the trustee is good at this and it moves along quickly.

The Trustee is satisfied with my answers and information. No additional documents are requested and the documents which were originally furnished to my attorney are returned to me for safekeeping. I have another financial class to take and my Discharge should be entered by the Court after another 90 or so days and my case will be over.
Not all cases are simple but bankruptcy is actually a very predictable process with few surprises. An experienced bankruptcy attorney can identify issues before they happen and help you navigate through the bankruptcy process. A problem free bankruptcy is the beginning of your fresh start.