Last month, a Forbes article detailed the dire state of finances for communities of color in this country. In his article, “Median Wealth of Black and Latino Families Could Hit Zero by the Middle of the Century,” Erik Sherman explains that by 2053, the median wealth of black households will be zero. According to Sherman, it is wealth inequality that continues to disadvantage black and Latino households. Though income inequality remains persistent, “wealth transfer and the advantages wealth provides—come together in ugly ways” to disadvantage these two groups, particularly black Americans.
But there’s more. For centuries, legal structures have been used to systemically prevent blacks from obtaining wealth. By examining the modern bankruptcy system, we find yet another way that blacks are marginalized and continue to be saddled with debt. This is particularly true in the South, Memphis in particular, which has some of the highest black bankruptcy rates in the nation.
When ProPublica analyzed consumer bankruptcy filings nationwide, the district [the U.S. Bankruptcy Court for the Western District of Tennessee] stood out, both for the stunning number of cases in which debtors were unable to get relief, and for the reasons why.
In Memphis, an entrenched legal culture has made bankruptcy a boon for attorneys while miring clients in a cycle of futility.
Under federal bankruptcy law, people overwhelmed by debt have a choice: They can either file under Chapter 7, which wipes out debts and, since most filers lack significant assets, allows them to keep what little they have. Or they can choose Chapter 13, which usually requires five years of payments to creditors before any debts are eliminated, but blocks foreclosures and car repossessions as long as debtors can keep up. In most of the country, Chapter 7 is the overwhelming choice. Only in the South, in a band of states stretching from North Carolina to Texas, is Chapter 13 predominant.
Unfortunately, many people confuse the difference between the two. Both Chapter 7 and Chapter 13 prevent garnishments and debt collections—but unlike Chapter 7, the relief under Chapter 13 is not permanent and only lasts as long as payments are made for five years on outstanding debts.
The problem is: most debtors in Memphis are unable to pay for a year straight, never mind five years. This means their case ends up being dismissed and they end up owing more—responsible for the cost of the debt they originally owed plus interest.
In 2015, over 9,000 cases in the district were dismissed—more cases than were filed in 22 other states that year. Less than a third of Chapter 13 cases in the district result in a discharge of debts. And when their cases are dismissed, debtors are often in worse straits, because as they struggled to make payments, the interest on their unpaid debts continued to mount. Once the refuge of bankruptcy is gone, the debt floods back larger than ever. They’ve borne the costs of bankruptcy—attorney and filing fees, a seven-year flag on their credit reports—without receiving its primary benefit. A system that is supposed to eliminate debt instead serves to magnify it.
But what’s really jarring is the data which demonstrates how this impacts black debtors compared to white ones. “Nationally, the odds of black debtors choosing Chapter 13 instead of Chapter 7 were more than twice as high as for white debtors with a similar financial profile. And once they chose Chapter 13, we found, the odds of their cases ending in dismissal—with no relief from their debts—were about 50 percent higher.” This is where several factors come into play. Lack of legal knowledge on the part of debtors, predatory bankruptcy attorneys (mainly white) who funnel black clients into filing for Chapter 13 and judicial bias. All of which continue to keep black households at risk of financial instability. But perhaps most of all, this is a yet another demonstration of the anti-black racism and deep financial inequality that exists in this country.
Because these debtors are so desperate to hold onto the little possessions they have and need to provide income and housing, they may find themselves in an ongoing cycle which really does nothing but keep them impoverished.
Lured by [the promise of car or mortgage payments reduced to an affordable rate], desperate Chapter 13 filers can spend years caught in a loop. One Whitehaven resident told me how, in order to hold on to her car, she’d filed under Chapter 13 four times since 2011. The first time, she lost her job a year and a half after filing, and her case was dismissed after she fell behind. She immediately filed again to keep the car for job interviews, using unemployment benefits to make the payments until she couldn’t. She then filed a third time. Finally in 2014, after her third dismissal, she got a new part-time job paying $11 an hour and filed again.
She still has two years of payments to go and will have spent most of her 30’s trying to hold on to her car. “If I’d known,” she said, “I just would have let my car go.”
Bankruptcy is big business for law firms in the South. Cases are filed by the thousands, firms make millions of dollars annually and many clients file multiple times. For black Americans who already have almost nothing, and as a community which is already on track to have a net wealth of zero in the next three decades, you can imagine how crippling this can be. As a country, we’ve just begun to have conversations about white supremacy—although it took Neo-Nazis marching in broad daylight to do it. Our understanding of racism is largely still limited to the interpersonal and group level.
However, we won’t really get close to racial justice and equity until we understand and dismantle white supremacy at structural levels. This includes these kinds of legal practices that conspire to keep blacks in poverty. We can’t continue to allow these structures to exist and then wonder why people can’t “pull themselves up by the bootstraps.” Our current bankruptcy system is guaranteeing that black folks have no pants, boots, straps, socks or anything else—for generations to come.