Study shows racial variance in Chapter 13 bankruptcy filings

Everyone has seen the commercials: the promise that by calling this number, immediately, all your financial woes will be lifted.  All your questions will be answered.

Many have fallen for the trap.  Many have filed for Chapter 13 bankruptcy when doing so was not a good option.  Perhaps they should have filed Chapter 7.  The mistake is quite common.  It is even more common among African Americans living in Chicago.

According to a study released this month by Chicago's Woodstock Institute, filers in mostly African American Chicago communities disproportionately choose Chapter 13 compared to peers from predominantly white neighborhoods:  47.9 percent compared to 32.8 percent.

Pursuant to Chapter 7, debts are discharged after the liquidation of assets (other than their homes, vehicles and other exemptions). But a majority of low-income filers do not have any non-exempt assets. Chapter 13 requires a commitment to a plan of payments to creditors for up to five years before the remaining debt is discharged.

According to the report, many file for Chapter 13 because they fear they would lose their homes if they filed for Chapter 7.  However, many Chicago bankruptcy attorneys would likely advise low-income workers to file for Chapter 7. Aside from the advantages inherent in Chapter 7 to protect assets, the filing usually cost much less then Chapter 13.

However, there are reasons why a filer would choose Chapter 13 over Chapter 7.

Some people file for Chapter 13 because of their larger incomes. Others choose 13 for the reason it allows the rolling of past-due mortgage payments into the creditor payment plan.

The report does not attempt to draw conclusions as to which African Americans are more likely to file Chapter 13.  Chicago bankruptcy lawyers s are equally perplexed by the phenomenon.  What they tend to agree on is that many of these low-income workers are simply not receiving good advice.

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