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