Breaking the cycle of sending Black debtors to the least protective form of bankruptcy starts with the attorneys advising them—but most of them don’t see racial gaps as a problem.
Faced with data on racial disparities in bankruptcy decisions, attorneys guiding those clients defended their decisions as providing the best advice for individuals’ situations, according to a study released Thursday. The survey, which built on Bloomberg Law reporting around racial gaps in bankruptcy, found most bankruptcy attorneys either claimed no knowledge of widespread racial disparities in bankruptcy or expressed little interest in addressing them.
“I found exactly what all of the research that inspired my project found, which is two things—one, either they don’t know [the racial disparity exists], or they’re not interested in tackling it,” said Emony Robertson, a Howard law school student who conducted the survey with LexisNexis African Ancestry Network and LexisNexis Rule of Law Foundation.
Past research shows that more than half of Black filers are steered toward Chapter 13 bankruptcy—twice the rate of White, Hispanic or Asian filers. Chapter 13, designed to protect assets like cars, homes, and retirement accounts, requires no legal fees upfront, unlike Chapter 7 bankruptcy. However it’s a much longer and riskier process with more than half of filers failing to complete the process.
That disparity is significant for Black filers who saw Chapter 13 issues exacerbated by the pandemic, which drove job losses, added unexpected medical bills, and a widened wealth and homeownership gap.
The ongoing research on racial gaps should force bankruptcy attorneys to take a harder look at themselves and the advice they give clients, said Jim Haller, education director at the National Association of Consumer Bankruptcy Attorneys.
“It’s our role to make sure that implicit bias does not play a role in terms of chapter choice,” he said. “I thoroughly believe that the buck always stops at my desk, so if there’s a disparity out there, I need to examine it and see if it’s affecting the advice that I give. That’s it. It’s not on somebody else to prove it to me.”
Reckoning With Bias
Roughly 60% of attorneys surveyed believed that white households filed Chapter 13 more than Black filers, according to Robert Lawless, a co-author of the study. In reality, Black filers were more likely to file Chapter 13.
“So it doesn’t surprise me that a lot of attorneys are resistant, and it doesn’t surprise me that this is what’s being heard,” said Lawless, a professor of law at University of Illinois College of Law, specializing in bankruptcy, consumer finance, and business law.
Another conclusion from Robertson’s report is that these practitioners believe they’re simply doing their job.
“Clients will come and ask, ‘what can you do for me?’ And from the perspective of the bankruptcy attorney, I would love 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 the have-nots are resources, in regard to, African Americans having the resources available to pay for Chapter 7,” said Gregory Burrell, a Chapter 13 trustee for the District of Minnesota. Trustees are Justice Department officials who represent the debtor’s estate in a bankruptcy.
“It’s not that the attorneys steer their client into a chapter. It’s more about the need of the clients, as well as if they can pay the attorney’s fees. It’s a balancing act.”
Fear of being labeled a racist, also plays a part, said Mechele Dickerson, the Arthur L. Moller Chair in Bankruptcy Law and Practice at the University of Texas at Austin School of Law.
“Anytime you say that something someone’s done creates a racial disparity, the person who you’re talking to assumes you’re calling them a racist, as opposed to, I don’t care what’s in your heart, I’m beyond that,” she said.
“But we can’t ignore the fact that your decisions are causing a harmful effect on Black people.”
Haller said bankruptcy attorneys may get defensive because they aren’t consciously steering filers toward Chapter 13 because of their race.
“It’s not part of the analysis that I think most attorneys do, and, as a result, the perception is that race plays no role,” he said.
While Chapter 13 can be a good option because it requires no legal fees upfront, more than half of filers don’t complete this plan, leaving them in worse positions than they were before.
“If you’re filing for bankruptcy because you’re broke, because your income is unstable, you may discharge your debts, but you’ll be broke next year. Your income isn’t going to be any more stable next year,” Dickerson said. “Bankruptcy is great if it’s a one-off.”
However, bankruptcy is not the solution for dealing with chronic financial trouble, she said.
Attorneys need incentives be more watchful when they offer advice, Dickerson said. That could include losing fees if a lawyer steers a Black debtor toward Chapter 13 unnecessarily.
“There has to be a consequence too. Whether it is inadvertent or intentional, because whether you meant to harm a Black person that’s in Chapter 13, or you harm them inadvertently, the harm doesn’t go away,” she said
However, it isn’t fair to put all responsibility on bankruptcy attorneys, Burrell said.
“The duty of the attorney is not to presume that because you’re Black you can’t afford the Chapter 7 fees, so I’m going to put you in the Chapter 13. The duty is, however, to inquire,” he said. “Yes, they have a role in addressing the disparity but only to the extent that they could. There are more factors to look at when considering how debtors, especially African American debtors get to bankruptcy, first and that’s not all on the attorney.”