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Subtle Form of Implicit Bias?: Study Finds Black Americans Are More Likely to Have Their Bankruptcy Filing Dismissed or Steered Toward Filing Chapter 13 Over Chapter 7

African-Americans are as much as 28 percent more likely to be dismissed from bankruptcy proceedings than non-Black bankruptcy filers, contributing to the widening wealth gap existing in the U.S., experts are reporting.

A bankruptcy dismissal closes your bankruptcy case, which means loss of protection of the automatic stay (the order that prohibits creditors from collecting debts). The bankruptcy petitioner continues to be liable for his debts.

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A recent study released by the University of Pennsylvania’s Wharton School of Business reveals bias in bankruptcy dismissal rates. This study, along with a 2012 report, found that Black Americans were more likely to be advised to enter Chapter 13 versus Chapter 7 bankruptcy proceedings, revealing implicit bias existing in bankruptcy advice and proceedings. 

Led by Wharton finance professor Sasha Indarte, researchers found that Black bankruptcy filers were more likely to have Chapter 7 and Chapter 13 bankruptcy cases dismissed by the court. 

A bankruptcy dismissal occurs for a variety of reasons. If a judge believes there has been intentional misconduct on the part of a filer or if forms have not been submitted correctly to the court. But one of the most common reasons: failure to repay debts filed under Chapter 13. 

“When a case is dismissed, this means someone goes through all the hassle of trying to file for bankruptcy, but they don’t actually get the debt relief by the end of the process,” Indarte said during an interview with Wharton Business Daily on SiriusXM.

“When we see that Black filers are much more likely to get their cases dismissed, that means they’re getting access to debt relief at a much lower rate.”

The study found that Chapter 7 cases for Black filers were 4 percent more likely to be dismissed than non-Black filers. The average dismissal rate for bankruptcy is 2 percent. Chapter 13 has a dismissal rate of 50 percent.

Yet Black filers consistently face an 80 percent chance of having their bankruptcy dismissed. In addition, Black filers using Chapter 13 were 28 percent more likely to be dismissed than other filers. 

Learn more about the revealing study at Finurah.

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