Bankruptcy Makes Debt Worse for Many Black Americans

Quick, name a type of bankruptcy. Odds are you went with Chapter 7—the most common type of bankruptcy filing in most of the US. But in the South, more debtors choose Chapter 13—in Memphis, the "bankruptcy capital of the US," 75% of debtors choose Chapter 13—and that's why ProPublica argues "bankruptcy is failing black Americans" in a meticulously researched longread. While one debtor in Memphis thought Chapter 7 and Chapter 13 were "the same," there is one important difference for debtors with little to no assets: Chapter 13 typically requires them to make five years of payments to creditors before their debts are eliminated. In 2015 in Memphis, fewer than a third of debtors who filed for Chapter 13 were able to complete those payments and get their debt forgiven. And most of those that did were in even worse debt trouble than when they started.

So why choose it? Many attorneys in Memphis offer to file under Chapter 13 for $0 upfront—and though it ends up costing about three times as much as Chapter 7 in attorney's fees in the long run, it's often the only offer debtors can afford. One white Memphis attorney says he favors Chapter 13 because it "shows people how to live without buying things" and to get over their "bad habits." But he's twice as likely to file under Chapter 7 for his white clients than his black clients. And this isn't just a Memphis problem. In the US, black debtors were more than twice as likely to choose Chapter 13 than white debtors and 50% less likely to get their debt relieved under Chapter 13. Meanwhile, more and more states appear to be taking their cues from cities like Memphis. Read the full story here for more on why "a system that is supposed to eliminate debt instead serves to magnify it." (More bankruptcy stories.)