Racial Disparities in Bankruptcy: Are You A Victim?

Racial Disparities in Bankruptcy: Are You A Victim?

Image Courtesy of: TheSocietyPages. Org

A recent study indicates that African Americans are about twice as likely as other races, in particular whites, to be steered into bankruptcy filings that do not fully benefit them. The study, “Race, Attorney, Influence, and Bankruptcy Chapter Choice” printed in  the Journal of Empirical Legal Studies was conducted by Jean Braucher of the James E. Rogers College of Law at the University of Arizona, Dov Cohen of the University of Illinois and Robert M. Lawless of the University of Illinois College of Law. The New York Times reports that “lawyers are disproportionately steering blacks into a process that is not as good for them financially”. According to Braucher, Cohen and Lawless, “African Americans were about twice as likely as debtors of all other races to file chapter 13 as opposed to chapter 7. ” Their study found that although their test subjects had the same financial facts as well as legal implications, “attorneys were more likely to recommend that an African-American couple (suggested by names and other indicators) file in chapter 13 than they were for a white couple. “

In a consumer bankruptcy there are two main options: Chapter 7 and Chapter 13.  The Bankruptcy Code captions Chapter 7 as a “liquidation” of all debts.  Chapter 7 is particularly recognized for wiping out unsecured debts such as credit cards, medical bills, payday loans, repossessions, or any other debts not tied to a physical asset. When someone files a Chapter 7 bankruptcy they are awarded a quick (process only takes on average 4 months) fresh financial start, in which they are freed of personal liability on most, if not, all old debts. Although Chapter 13 is perceived as the best route to hold on to collateral such as a home or car, the reality is that chapter 7 debtors who are or who can become current on any financed asset can also do so. This procedure does not involve a repayment plan and for the most part chapter 7 fees are much lower.

On the other hand,  Chapter 13 involves a three-to-five year repayment plan, with the discharge being awarded once the plan has been completed. People choose chapter 13 for a variety of reasons including saving a home from foreclosure, preventing the repossession of a vehicle, paying back government debts such as back-taxes, unemployment overpayment, child support arrearage, etc. In Chapter 13 bankruptcies, debtors can either cram down secured debts to market/collateral value or strip off supporting liens such as second mortgages on a home. Unfortunately, only about a third of debtors who file a chapter 13 bankruptcy complete their repayment plans and received a discharge.

Authors of the “Race, Attorney, Influence, and Bankruptcy Chapter Choice” story stated that “while chapter 7 fees are lower, attorneys are often willing to take much of their fees in chapter 13 over time in the plan, so that debtors without savings may use chapter 13 in part to file more quickly.” A key motivating factor as to why some bankruptcy attorneys may prefer a chapter 13 is because attorney fees are more expensive in a Chapter 13 as opposed to a Chapter 7. These authors investigated the racial disparities that exist in modern bankruptcy and found that “chapter choice is heavily influenced by professional gatekeepers and is not a purely independent choice of the debtors who use the consumer bankruptcy system.” The raw data of this study found that there exists a “striking racial difference in use of the two chapters with 54.7 percent of the American-American households filing in chapter 13, compared to 28.2 percent of debtors of all other races.” Throughout their research, Bacher, Cohen and Lawless found the following percentage rates of chapter 13 use as opposed to chapter 7:

African American    54.7%
White                        28.6%
Asian                        24.4%
Other                        23.8%
Hispanic                   21.7%

In addition to the staggering numbers mentioned above, the study” did not indicate that African-Americans were getting more lenient plans or better results in completing them. There was a weak trend for their chapter 13 plans to propose repaying more to their unsecured creditors than plans from debtors of other races (30.9 percent to 26.1 percent). Also, their cases were dismissed from chapter 13 at a higher rate than the cases of debtors of other races (36.2 percent to 25.5 percent, when followed up 10 to 14 months after their filings.)

These authors found no systematic evidence on whether actors (bankruptcy & federal judges, bankruptcy trustees, etc.)  in the system other than debtors’ attorneys also play a role in producing racially disparate results. The study further indicated that “attorneys recommended chapter 13 to American-Americans who expressed a preference for chapter 7 at a rate that was trivially higher than that for whites who expressed a preference for chapter (45 vs. 38 percent).” Cohen expressed that “attorneys seemed to consider whites more competent if they took care of their financial interests and wanted a fresh start, while African-Americans were more likely to be expected to take the longer, generally more burdensome route of a chapter 13 plan to earn their competence by taking care of past mistakes.”

In her Racial Steering In Bankruptcy essay, Mechele Dickerson claims that “though black debtors are disproportionately placed in chapter, bankruptcy lawyers steer whites away from chapter 13.” Her research found that 57.4 % of black households were more than likely to be guided into a chapter 13 filing.  It’s counter part (white filings) consisted of 29.2%. In a second study, Dickerson found that “lawyers concluded that whites who preferred to repay their debts in chapter 13 were confused, did not understand that it was not in their best interest to spend up to 5 years repaying old debts using future income, and needed to be saved from their unwise decision”.

Evidence from the story mentioned above suggests that the racial gap in use of chapter 13 appears to be substantial and attorney recommendations appear to be a significant factor of its production. The reality is that bankruptcy can be a very complex process, one difficult for the average person to understand therefore debtors’ attorneys play a strong role in chapter choice, which is often desired by clients.

The reality is that clients who are seeking legal advice about filing for bankruptcy have a right and should expect that their lawyer give them advice that protects their interests even if those interests may not be in the best interest of their creditors. We urge all who read this and are considering to file bankruptcy to seek the bankruptcy relief that is in your best interest.  Until the system’s leaders investigate this racial disparity further and are able to address it, you  should seek out honest, trustworthy, legal representation. The Law Offices of Ernesto Borges & BillBusters. Our firm focuses on providing the best option for your particular case without steering you into a bankruptcy that is not ideal for you. Call us at 312-853-0200 for more information or schedule your free debt analysis by clicking here.

Additional Resources:  
“Race, Attorney, Influence, and Bankruptcy Chapter Choice” – printed in  the Journal of Empirical Legal Studies
“Blacks Face Bias in Bankruptcy, Study Suggests” - nytimes.com
“Racial Disparities in Bankruptcy Filings” – theroot.com

By admin
Published: February 8, 2013
Leave a comment

U.S. Banks Attempt to Clean Up Mortgage Crisis By Paying Back $8.5 Billion

On Monday January 7th, 2013 by the Office of the Comptroller of the Currency and the Federal Reserve announced that ten U.S. major banks came to an agreement to pay back $8.5 million to qualifying homeowners whose homes were wrongfully foreclosed in 2009 and 2010. This deal could compensate hundreds of thousands of Americans who were forced out of their homes because of bank abuses such as “robo-signing,” when banks signed off on foreclosure proceedings without adhering to proper foreclosure review protocol.

The settlement calls for an agreed payback amount of $8.5 million. Of this large sum, $3.3 billion will be paid back directly to borrowers who were affected. The remaining $5.2 billion will be used to forgive outstanding principal on home sales  that generated less than borrowers owed on their mortgages as well as to reduce mortgage bills. Amongst the banks involved in this deal includes JPMorgan Chase, Wells Fargo, Bank of America, Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora.

According to Thomas Curry from the Comptroller of the Currency, this settlement “represents a significant change in direction” from the original 2011 settlement agreements and ensures “consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner.” Under this agreement, banks will cut checks anywhere from $1,000 up to $125,000 depending on each consumer’s individual situation. According to the agreement’s guidelines, those whose homes were unfairly seized and sold will entitle them to a larger check. On the other hand, those denied a  loan modification will receive smaller payback amounts.

As dandy as this may sound to many of you, there are some implications to the agreement. Unfortunately, this foreclosure settlement does not close the book on the housing crisis, which caused more than 4 million foreclosures. Only those foreclosed in 2009 and 2010 will reap its benefits leaving millions without a viable solution. For this reason many consumer advocates are displeased with the agreement. They complained that regulators settled for too low a price by allowing banks to avoid full responsibility for foreclosures. Diane Thompson, a lawyer with the National Consumer Law Center, asserts this agreement to be “another get out of jail free card for the banks,” because “it caps their liability at a total number that’s less than they thought they were going to pay going in.”

Leaders of a House oversight panel have asked regulators for a briefing on the proposed settlement. Regulators had refused to brief Congress before announcing the deal publicly. Rep. Elijah Cummings of Maryland, the top Democrat on the House Committee on Oversight and Government Reform, said the settlement “may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered.” He complained that regulators failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.

As a result many will not benefit from this settlement but this does not mean that you need to fear losing your home. A Chapter 13 bankruptcy can stop foreclosure and help save your home from being auctioned off. Filing this type of bankruptcy can also aid in the reorganization of debt and help you take one step forward towards re-establishing your credit.

By calling the Law Offices of Ernesto D. Borges & BillBusters you can file a bankruptcy and lower debt once and for all. Bankruptcy can be the solution to your financial burdens and is a way to keep a roof over your head. To find out more if a bankruptcy is the necessary solution to your troubles call BillBusters at 312-853-0200 or schedule appointment here.

 Additional Resources:

Daniel Wagner – 10 banks agree to pay $8.5B for foreclosure abuse

Associated Press writers Steve Rothwell in New York, Mike Schneider in Orlando, Fla., and Marcy Gordon in Washington contributed to this report.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.

US banks try to clean up mortgage mess left over from financial crisis, agree to pay $8.5B

Image:

courtesy of washingtonpost.com

 

By mlear
Published: January 9, 2013
Leave a comment

The Fiscal Cliff: A Call For A Fresh Start


Although the economy is steadily growing, debts are still on the rise regardless of Congress’s recent actions.

On January 1, 2013 lawmakers did not extend one  key tax break that affects the American working class. The following day President Obama signed the American Taxpayer Relief Act of 2012 (H.R. 8).  In turn many are considering the Fiscal Cliff to be a financial nightmare. The Fiscal Cliff refers to the dilemma the U.S. government faced a few days ago when the terms of the Budget Control Act of 2011 went into effect. The bill raises tax rates on income above $400,000 for individuals and $450,000 for couples.  In addition, the temporary Social Security payroll tax reduction that was in effect for tax years 2011 and 2012 has expired. For paychecks dated in 2013, the employee Social Security rate returns to 6.2 percent. For more information and guidance from the IRS on the 2013 withholding tables, including the Social Security rate change, visit the IRS website. The solution lawmakers drew will continue to extend tax cuts associated with the Mortgage Forgiveness Debt Relief Act of 2007 amongst others. Regardless though we will feel the aftermath of lawmaker’s decisions.

How Fiscal Cliff Will Affect You
The 2009 efforts of the federal government  to boost the economy called for a temporary tax break from worker’s paychecks, which decreased the amount from 6.2 percent to 4.2 percent. One of the key topics discussed in the Fiscal Cliff matter is the end of temporary payroll tax cuts. On January 1st the tax break installed in 2009 was not extended, which in turn will result in an annual decrease in middle-class pay.

Because lawmakers did not extend this tax break, middle-class workers will notice a 2% tax increase in their paychecks.  It is estimated that an 80% of households with incomes between $50,000 and $200,000 will pay higher taxes. This means that an estimated 160 million American workers can now look forward to receiving less money on their 2013. paychecks.  In other words, YOU will be affected.

Holiday Debt
Americans across the nation received this terrible news at a time when debt is already a looming topic. As is the norm this time of the year, Americans find themselves in financial burdens due to post-holiday credit card debt.

The pressure of Christmas shopping causes Americans to put their current debts aside and focus on shopping. This causes people to make minimal payments on their credit cards. As a result, interest rates continue to drive up the original debt balance and people are then forced into a cycle of financial stress. Adding to this stress is the constant nagging of harassing calls from creditors trying to collect.

Many believe that they will receive a promotion or a bonus within the first month of the new year but the sad reality is that only few receive this privilege and the money you once planned would get you out of debt ceases to exist. If you’re having second thoughts about your financial plan for the new year and find yourself seeping in debt, it’s unlikely that you’ll be able to get out of this mess without professional help, especially now that your paycheck will be 2% less than last year.

Bankruptcy: The Solution
Bankruptcy is a solution that is available to Americans across the nation including your state of Illinois. There many different forms of bankruptcy. Some that can wipe your debt such as a Chapter 7 or a repayment plan through a Chapter 13 that can suit your income. Regardless of your paycheck’s new tax cut, filing a bankruptcy can reduce and possibly eliminate debt you currently possess which will allow you to use your paycheck for the important bare essentials.

The Chicago bankruptcy attorneys at the Law Offices of Ernesto D. Borges & BillBusters can assist you determining which is the ideal bankruptcy to sooth your financial stress. Call BillBusters today at 312-853-0200 or schedule your free consultation online with one of our many experienced bankruptcy attorneys or visit us on our facebook and twitter pages for more info on Illinois bankruptcy.

 

By admin
Published: January 4, 2013
Leave a comment

A Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is also known as “Reorganization” and allows debt to be placed into a 3 to 5 year repayment plan that is designed to fit around your budget. Chapter 13 allows you to catch up on missed payments, while protecting your property from your creditors.

Upon the filing of a Chapter 13 Bankruptcy, an “automatic stay” will prevent any repossession or foreclosure while your payments are being made through the Chapter 13 plan. It can also stop wage garnishments and release your license from suspension. A great majority of individuals who file for Chapter 13 are doing so to save their home or vehicle, and to become current once again. However there are other reasons that may make a Chapter 13 bankruptcy necessary instead of a Chapter 7, such as having unprotected equity in property or having too much income. Come speak with our staff for further information.

A Chapter 13 Bankruptcy treats debt differently than a case under Chapter 7. In a Chapter 13, unsecured debt is being paid back at a percentage of what is owed, based on what your income allows. This could be as little as 10%. Most Tax debts and child support arrears must be paid in full however. Secure debt arrears must be paid back in full through the plan for you to be able to retain the property. When your property or vehicle is under secured though, this leads to many other options. Our knowledgeable staff is able to critically analyze your situation to give you all your options, before you have to make any decisions.

At the end of your Chapter 13 plan, any unsecured debt that has not been paid will be discharged as it would under a Chapter 7 bankruptcy. Your home will be current, your vehicle paid off, and you will be back on track. Schedule an appointment today to see what we can do to help.

By admin
Published: March 29, 2012
Leave a comment