Study: Minorities File for Chapter 13 More than Whites
A recent study released by the Woodstock Institute of Chicago shows some strange numbers about bankruptcy filings and race. Specifically, the study shows that African American bankruptcy filers choose Chapter 13 bankruptcy more frequently than their white peers.
The implications of this finding are interesting and instructive to anyone considering bankruptcy as a way of easing debt.
Chapter 13 vs. Chapter 7: What’s the Difference?
In order to understand why this study’s findings matter, it’s essential to understand the key differences between Chapter 7 and Chapter 13 bankruptcy.
- Chapter 7 bankruptcy is designed to offer filers a full discharge of eligible unsecured debt. In order to qualify, filers must pass a means test showing that they do not have sufficient income to make regular payments according to a Chapter 13 repayment plan. Chapter 7 often works well for low-income filers who don’t have very much non-exempt property.
- Chapter 13 bankruptcy is designed to help those with a regular income repay a portion of their debts. Chapter 13 filers follow a three- to five-year repayment plan in order to catch up on money they owe. At the end of this period, remaining unsecured debts may be discharged by the court.
Choosing the Right Chapter Matters
The study apparently found that blacks and whites of equal income levels were choosing bankruptcy chapters in different proportions. Specifically, sources indicate that in predominately black areas, about 47.9 percent of filers choose Chapter 13 bankruptcy and in predominately white areas, only 22.5 percent of filers do. Nationwide, the rate is 32.8 percent.
Some sources suggest the difference may have been caused in part by overly aggressive advertising by certain bankruptcy firms who were targeting filers in specific areas. These firms, it seems, may have earned more money by leading filers toward Chapter 13 even when they could have filed for Chapter 7.
And the consequences for filing for Chapter 13 when you qualify for Chapter 7 could be serious:
- Strained finances: Those who qualify for Chapter 7 protection may just barely make enough money to make payments in the Chapter 13 repayment plan, which could harm their ability to save money for emergencies.
- Prolonged debt: Rather than moving through a quick, four- to six-month Chapter 7 case and ending with a debt discharge, Chapter 13 filers must wait for several years before their debts are cleared. In that time, missing a payment could cause the court to remove its protection.
- Few benefits: Those who do not have significant non-exempt property may have little or nothing to gain from filing for Chapter 13 when they qualify for Chapter 7.
Deciding which type of bankruptcy makes the most sense for your situation can make a huge difference to your financial future. If you’re considering a bankruptcy filing, be sure to consult with a bankruptcy lawyer about your options.
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