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The Causes and Effects of the Racial Gap on Chapter 7 and 13 Bankruptcy…
The Causes and Effects of the Racial Gap on Chapter 7 and 13 Bankruptcy Filings
Financial Literacy
:
Racial Differences in Financial Knowledge
One way to combat financial illiteracy is through financial literacy education which are programs to combat illiteracy for at-risk communities by providing financial skills and knowledge
But these programs are, overly optimistic, lead to financial illiteracy and ignores racial illiteracy
Financial knowledge is important for wealth accumulation, with certain races having lower financially literate levels than others which may obstruct them from thriving in this economy
Minorities, especially African Americans have lower financial knowledge levels which may be a factor when comparing Chapter 7 and 13 filings
Gender Differences in Financial Knowledge
: We can see similar financial literacy patterns amongst gender as we do with different races
Women score lower on financial literacy questionnaires in comparison to men
Women perceive themselves as less financially knowledgeable than men
Women are less likely to state that they are financially knowledgeable enough to choose investments that are suitable for their circumstance
Socioeconomic factors affecting the financial literacy gender gap:
Age
Education
Immigration
Income Level
Relationship Status
Economic Household Contributions
Women seek financial advice more often than men
The Importance of Financial Knowledge
All individuals depend on credit in this day and age to finance their lives
Important for the engagement of settler culture, society, economics and politics
Affirrms the current neoliberal economic system
Other Factors affecting bankruptcy
Children and Bankruptcy
Dependents:
about 1 in 51 children in the U.S were the dependent of a debtor that filed for personal bankruptcy in 2001 versus only 1 in 123 adults filed for bankruptcy, meaning children experience bankruptcy at double the rates of adults
Having children within a household increases the risks of bankruptcy by 300%
Single Parents and larger families increase this financial risk
Other Theories to Explain why African Americans are Recommended Chapter 13 More Often
Consumer Financial markets:
It may be that African Americans are recommended Chapter 13 not specifically due to their race, but because they are discriminated in many other settings such as the workplace and housing markets creating racial steering in the bankruptcy system
One theory is that African Americans are recommended Chapter 13 more often to retain their motor vehicles and driver's licenses which are more valuable to African Americans because they have longer commuting times to work, school, and other essential areas but this data is only correlational and not causal
Wage Gaps:
there are significant gender and wage gaps in the U.S workforce putting women, African Americans, and hispanics at a disadvantage compared to white debtors
Causes of wage gaps:
Education
Labour force experience
occupation and industry factors
Discrimination
There has been no significant advancement towards minimizing the wage gap between different races
Attorney Influence:
Attorneys may play a role in the racial outcomes of bankruptcy filings based on their recommendations
Possible Attorney Role:
Attorneys have an impact on chapter choice due to the technical nature of bankruptcy law. Therefore, how they frame their recommendations based on their preferences may influence filing outcomes
Client Self Selection:
Clients selecting specific attorneys may be a factor for the racial gap due to African Americans just happening to select lawyers that recommend Chapter 13 but this was accounted for in studies by randomly assigning attorneys to clients
Client Preferences:
Attorneys may recommend specific chapter filings to certain races as a reflection of their knowledge of previous client preferences, not due to racial biases
Attorney Bias:
Another possibility is that attorneys are biased and specifically recommend Chapter 13 to African Americans and Chapter 7 to other debtors
Paternalism
: Attorneys may feel that they must inform their clients that it is their moral duty to repay all of their debts
Filing Outcomes:
It was found that Chpater 13 filings rates are substantially higher among African American households than the average Chapter 13 filing rate
Racial Steering:
It is of the view that although African Americans have a much higher incidence of Chapter 13 filings, attorneys continue to steer white debtors aways from Chapter 13 and towards Chapter 7
Chapter 7 Versus Chapter 13
Chapter 7:
Manage to pay off debts by liquidating assets
Short period of time in the bankruptcy process, about 6 months
Receive a discharge of most debts
Can only keep property that is exempt from the bankruptcy process by state laws (rare)
Must liquidate any other non-exempt assets, but most Chapter 7 debtors have little to no assets
Fairly low attorney fees
Chapter 13:
Manage to pay off debts by devoting future income to a repayment plan
Spend more time in the bankruptcy process, taking 3 to 5 years to repay their debts
Chapter 13 has a much higher failure rate and debts are not discharged until repayment plan is complete
Debtors can keep possession of their property
Much higher attorney and legal fees
Legal Requirements
2005 Bankruptcy Code Amendments:
More debtors may be pushed towards Chapter 13 filings due to past abuse of the bankruptcy system
Accountability and Responsibility
Religious beliefs:
some debtors feel a duty to repay their debts in full due to religious beliefs
Moral obligations:
Some debtors feel the need to fully pay off their debts and choose Chapter 13 over the more forgiving Chapter 7