Racial gaps in bankruptcy notices reveal lawyers’ blind spots

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Breaking the cycle of sending black debtors to the least protective form of bankruptcy begins with the attorneys advising them, but most of them don’t see racial differences as an issue.

Faced with data on racial disparities in bankruptcy decisions, lawyers guiding these clients have defended their decisions as providing the best advice for individual situations, according to a to study released Thursday. The investigation, which was based on the Bloomberg Racial Gaps in Bankruptcy Act reports, found that most bankruptcy attorneys said they were unaware of widespread racial disparities in bankruptcy or expressed little interest in addressing it.

“I found exactly what all of the research that inspired my project found, which is two things — one or they don’t know. [the racial disparity exists], or they’re not interested in tackling it, ”said Emony Robertson, a Howard law student who conducted the survey with the LexisNexis African Ancestry Network and the LexisNexis Rule of Law Foundation.

Previous research shows that more than half of black filers are headed for Chapter 13 bankruptcy, twice the rate of white, Hispanic or Asian filers. Chapter 13, designed to protect assets such as cars, homes, and retirement accounts, requires no upfront legal fees, unlike Chapter 7 bankruptcy. However, it is a much longer process. and more risky, more than half of reporters not having completed the process.

This disparity is significant for black filers who have seen Chapter 13 problems exacerbated by the pandemic, which has resulted in job losses, added unexpected medical bills, and a widened wealth and homeownership gap.

Ongoing research into racial gaps should force bankruptcy lawyers to take a closer look at themselves and the advice they give to their clients, said Jim Haller, director of education at the National Association of Consumer Bankruptcy Attorneys.

“It is our role to make sure that implicit biases do not play a role in terms of chapter choice,” he said. “I firmly believe that the money always ends at my desk, so if there is a disparity there, I have to take a look at it and see if it affects the advice I give. That’s it. It’s not for someone else to prove it to me.

Counting prejudices

One of the reasons bankruptcy lawyers may not know the disparity exists is because they assume black families are filing Chapter 7 rather than Chapter 13, according to a 2017 to study.

According to Robert Lawless, co-author of the study, about 60% of lawyers surveyed believed white households had filed Chapter 13 more than black filers. In fact, black filers were more likely to file Chapter 13.

“So it doesn’t surprise me that a lot of lawyers resist, and it doesn’t surprise me that this is what we hear,” said Lawless, professor of law at the University of Illinois College of Law, specializing in bankruptcy, consumer credit and business law.

Another finding from Robertson’s report is that these practitioners believe they are just doing their job.

“Customers will come and ask, ‘What can you do for me?’ And from a bankruptcy attorney’s point of view, I would like to file you under Chapter 7, but I can’t because you don’t have the resources to pay. So the difference between the haves and have-nots is resources, when it comes to African Americans having the resources available to pay for Chapter 7, ”said Gregory Burrell, Chapter 13 administrator for the District of Minnesota. Trustees are officials of the Department of Justice who represent the estate of the debtor in bankruptcy.

“It’s not that lawyers lead their clients in a chapter. It’s more about clients’ needs, as well as their ability to pay attorney’s fees. It’s a balancing act.

Fear of being labeled a racist also plays a role, said Mechele Dickerson, Arthur L. Moller Chair in Bankruptcy Law and Practice at the University of Texas at Austin Law School.

“Anytime you say something someone did creates a racial disparity, the person you’re talking to assumes you’re calling them racist, as opposed to, I don’t care what’s in your heart, I’m beyond that, “she said.

“But we cannot ignore the fact that your decisions are having a detrimental effect on black people.”

Haller said bankruptcy lawyers might be on the defensive because they don’t consciously point filers towards Chapter 13 because of their race.

“It’s not part of the analysis that most lawyers do, I think, and therefore the perception is that race doesn’t play a role,” he said.

Chronic insecurity

While Chapter 13 can be a good option because it doesn’t require any upfront legal fees, more than half of filers don’t complete this plan, leaving them in worse positions than before.

“If you file for bankruptcy because you’re broke, because your income is volatile, you can pay off your debts, but you’ll be broke next year. Your earnings won’t be any more stable next year, ”Dickerson said. “Bankruptcy is excellent if it is punctual”.

However, bankruptcy is not the answer to dealing with chronic financial problems, she said.

Lawyers need incentives to be more vigilant when offering advice, Dickerson said. This could include the loss of fees if an attorney directs a black debtor to Chapter 13 unnecessarily.

“There must be a consequence too. Whether it’s inadvertently or intentionally, because whether you want to hurt a black person who is in chapter 13, or you inadvertently hurt them, the hurt doesn’t go away, ”she said.

However, it’s not fair to put all the blame on bankruptcy lawyers, Burrell said.

“The lawyer’s duty is not to assume that because you are black you cannot afford Chapter 7 fees, so I’ll put you in Chapter 13. The duty is, however, to inquire “, did he declare. noted. “Yes, they have a role to play in reducing the disparity, but only to the extent that they can. There are more factors to consider when considering how debtors, especially African American debtors, go bankrupt first and that’s not all about the lawyer.



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