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DEBT AID REVEALS RACIAL BIASES

A study finds blacks often end up in more costly bankruptciesthan whites.

New York Times

Blacks are about twice as likely as whites to wind up in the more onerous and costly form of consumer bankruptcy as they try to dig out from their debts, a new study has found.

The disparity persisted even when the researchers adjusted for income, home ownership, assets and education. The evidence suggested that lawyers were disproportionately steering blacks into a process that was not as good for them financially, in part because of biases, whether conscious or unconscious.

The vast majority of debtors file under Chapter 7 of the bankruptcy code, which typically allows them to erase most debts in a matter of months.

It tends to have a higher success rate and is less expensive than the alternative, Chapter 13, which requires debtors to dedicate their disposable income to paying back their debts for several years.

The study of racial differences in bankruptcy filings was written by Robert M. Lawless, a bankruptcy expert and law professor, and Dov Cohen, a psychology professor, both at the University of Illinois; and Jean Braucher, a law professor at the University of Arizona.

A survey conducted as part of their research found that bankruptcy lawyers were much more likely to steer black debtors into a Chapter 13 than white filers even when they had identical financial situations. The lawyers, the survey found, were also more likely to view blacks as having "good values" when they expressed a preference for Chapter 13.

The study has two parts. One used data from actual bankruptcy cases from the Consumer Bankruptcy Project, the most detailed trove of information on filers currently available. The project surveyed 2,400 households nationwide that filed for bankruptcy in 2007.

Results from the second part of the study, which illustrated the lawyer's influence in determining which bankruptcy chapter to choose, came from a survey sent to lawyers asking them questions based on fictitious couples who were seeking bankruptcy protection. When the couple was named "Reggie and Latisha," who attended an African Methodist Episcopal Church - as opposed to a white couple, "Todd and Allison," who were members of a United Methodist Church - the lawyers were more likely to recommend a Chapter 13, even though the two couples' financial circumstances were identical.

"Unfortunately, I'm not surprised with these results," said Neil Ellington, executive vice president of Consumer Education Services, a credit counseling agency in Raleigh, N.C.

"The same underlying issues that created the problem in mortgage lending, with minorities paying higher interest rates than their white counterparts having the same loan qualifications, are present in all financial fields."

The findings, which will be published in the Journal of Empirical Legal Studies this year, did not suggest there was any obvious evidence of discrimination in the bankruptcy process.

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