Study Reveals Racial Bias in Bankruptcy Cases • ThePowerBloc

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According to a recent study, approximately 30 percent of African-American filers are more likely to have their bankruptcy cases dismissed than non-Black bankruptcy filers, Yahoo News reports.

When a bankruptcy case is dismissed, the automatic stay protection order, which prohibits creditors from continuing to collect the debts, is withdrawn. As a result of this, the bankruptcy petitioner continues to be liable for his debts even though the case is dismissed, keeping the filer in debt for years to come.

The University of Pennsylvania’s Wharton School of Business found racial bias in bankruptcy cases due to the number of dismissal rates. Additionally, a 2012 report found that Black Americans were more likely to be advised to file for Chapter 13 instead of Chapter 7 bankruptcy proceedings, revealing implicit bias existing in bankruptcy legal counsel and court proceedings.

Sasha Indarte, a finance professor at Wharton who spearheaded the study, discovered that Black Americans who filed Chapter 7 and Chapter 13 bankruptcy cases were often dismissed by the court. 

Reasons for bankruptcy dismissals range from if the judge believes purposeful misconduct by the filer took place or if forms have not been submitted correctly to the court. But one of the most common reasons: failure to repay debts filed under Chapter 13 rules.

Chapter 7 cases for Black filers were 4 percent more likely to be dismissed than non-Black fillers, the report stated. The average dismissal rate for bankruptcy is just 2 percent while Chapter 13 has a dismissal rate of 50 percent.

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According to the report, 80 percent of Black filers were likely to have their bankruptcy dismissed and those using Chapter 13 were 28 percent more likely to be dismissed than other filers.

“When a case is dismissed, this means someone goes through all the hassle of trying to file for bankruptcy, but they don’t actually get the debt relief by the end of the process,” Indarte said.“ When we see that Black filers are much more likely to get their cases dismissed, that means they’re getting access to debt relief at a much lower rate.





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