Study Finds Black Americans More Likely To Have Their Bankruptcy Filing Rejected Or Referred To Chapter 13 Filing Compared To Chapter 7
African Americans are up to 28% more likely to be discharged from bankruptcy than non-black bankruptcy filers, which contributes to the widening of the wealth gap existing in the United States, report the experts.
A bankruptcy rejection closes your bankruptcy case, which means the loss of automatic stay protection (the order that prohibits creditors from collecting debts). The bankruptcy applicant remains responsible for his debts.
A recent study published by the Wharton School of Business at the University of Pennsylvania reveals a bias in dismissal rates for bankruptcy. This study, along with a 2012 report, found that black Americans were more likely to be counseled to enter Chapter 13 bankruptcy compared to Chapter 7 bankruptcy proceedings, revealing an implicit bias that exists in counseling and bankruptcy proceedings.
Led by Wharton finance professor Sasha Indarte, the researchers found that black bankruptcy filers were more likely to see Chapter 7 and 13 bankruptcy cases dismissed in court.
A dismissal for bankruptcy occurs for various reasons. If a judge believes there was willful misconduct on the part of a depositor or if the forms were not submitted correctly to the court. But one of the most common reasons: non-repayment of debts filed under Chapter 13.
“When a case is closed, it means someone is going through all the hassle of trying to file for bankruptcy, but not actually getting debt relief at the end of the process,” he said. Indarte said in an interview with Wharton Business Daily on SiriusXM.
“When we see that black filers are much more likely to have their cases rejected, it means they have access to debt relief at a much lower rate.”
The study found that Chapter 7 cases for black filers were 4 percent more likely to be rejected than non-black filers. The average rate of dismissal for bankruptcy is 2%. Chapter 13 has a 50 percent termination rate.
Yet black filers consistently have an 80% chance of having their bankruptcy rejected. Additionally, black filers using Chapter 13 were 28 percent more likely to be fired than other filers.
Learn more about Finurah’s revealing study.