Public records on bankruptcy filings do not specify the race of the debtor. It is therefore generally not possible to break down bankruptcy rates definitively by racial group. Still, data researchers have had success comparing bankruptcy filings by race, with ProPublica publishing a major investigative study on the topic in 2017. Its data found significant disparities between races in the types of bankruptcy filed and their rates. success in emerging from bankruptcy.
Key points to remember
- Detailed data on bankruptcy rates by race is not available, as court documents do not indicate the race of the debtor.
- Data from majority black zip codes versus majority white zip codes indicates that black debtors are significantly more likely than white debtors to file for Chapter 13 bankruptcy.
- The path to success is much harder via Chapter 13 than via Chapter 7.
- Chapter 13 filers in black ZIP codes have a much higher failure rate in settling their debts than Chapter 13 filers in white ZIP codes.
What Bankruptcy Researchers Found
Instead of race-specific data on individual bankrupt filers, ProPublica compared aggregate data from majority black ZIP codes and majority white non-Hispanic ZIP codes.
Looking at the two most common types of individual bankruptcy, Chapter 7 and Chapter 13, ProPublica found that debtors in black ZIP codes were significantly more likely than those in white ZIP codes to file under Chapter 13. This is important because the odds of successfully paying off his debts are much lower in a Chapter 13 filing than they are via the easier Chapter 7 route.
In addition, the analysis showed that success rates of exiting bankruptcy through Chapter 13 varied significantly across zip codes, with black zip code filers being 39% likely to be successful in resolving their debts, compared to the success rate of white postcodes of 58%.
|Bankruptcies in Majority White vs. Majority Black ZIP Codes (2008–2010)|
|Bankruptcy indicator||White postal codes||Black postal codes|
|Chapter 7 success rate (i.e., debts discharged)||97%||90%|
|Chapter 13 success rate (i.e. debts paid)||58%||39%|
|Among Chapters 7 and 13 filings, percentage that fall under Chapter 13||26%||50%|
|Chapter 13 Filings Failure Percentage (Case Dismissed)||40%||58%|
|Percentage of all bankruptcy filings failing (case dismissed)||12%||31%|
Understanding the Types of Bankruptcy Filings
When considering bankruptcy, common parlance causes many of us to think of the phrase “filing for Chapter 11,” as it is commonly used in popular culture and media. However, there are actually six bankruptcy chapters in the US bankruptcy code.
The two most common types for an individual to file are Chapter 7 and Chapter 13. Chapter 11 is similar to 13, but is much more complex and tends to be used only when the debtor has significant assets. As a result, Chapter 11 is more often filed by businesses than by individuals.
The code also allows the reorganization of bankruptcy by municipal governments (Chapter 9), special conditions for fishermen and farmers (Chapter 12). Considered the “new chapter” in bankruptcy law, Chapter 15 is the reorganization of multinational debt and is aligned with the United Nations Commission on International Trade Law (UNCITRAL).
For typical individuals, filing for bankruptcy will become a choice between Chapter 7 and Chapter 13. Chapter 7 is simpler and has a very high probability of paying off debts entirely within a few months. However, secured debt like real estate cannot be protected by a Chapter 7 bankruptcy. For this reason, people who own a home often opt for Chapter 13 because it can protect their home from foreclosure. The downside is that Chapter 13 filings require a three to five year repayment period and the success rates are much lower than a Chapter 7 filing.
Why Chapter 13 Is More Common In Black ZIP Codes
If one of the main reasons for choosing a chapter 13 bankruptcy over chapter 7 is to protect one’s home, why do the majority of black zip codes choose chapter 13 at a higher rate, when black Americans have a lower homeownership rate than white Americans?
ProPublica’s analysis showed that it most likely depends on the cost of each type of filing and when the fees are due. The shortest and most successful Chapter 7 option typically cost around $1,000 at the time of review, and fees were due up front or within a few weeks. In contrast, Chapter 13 is often offered at $0 down payment to start a business. Although the final cost of a Chapter 13 filing is $3,000 to $4,000, these bills fall due during the term of the filing, which is typically five years.
As a result, debtors in majority-black neighborhoods who can’t muster $1,000 or more to start a Chapter 7 process are opting instead for Chapter 13, which they can start for free, despite the fact that the benefit of protecting a home against foreclosure may not apply to them if they are tenants.
The racial disparity between black and white Americans who find themselves filing for bankruptcy is exacerbated by the fee structures and payment schedule that surround Chapter 7 versus Chapter 13 filings. As a result, debtors who experience the more difficulties are pushed down a path that is not only slower and less successful, but also more costly over time.
ProPublica’s in-depth analysis was based on the Courts Administrative Office’s National Bankruptcy Dataset, which contained data for all bankruptcy cases filed from 2008 to 2015. The data was limited to consumer cases initiated in under either Chapter 7 or Chapter 13, and focused on filings initiated between 2008 and 2010, as this allowed data to be included for the full five-year process of most Chapter 13 filings.