Dismissal with Prejudice? Race and Politics in Personal Bankruptcy

Abstract:     
We exploit the random assignment of judges in personal bankruptcy proceedings to test whether race and politics bias judges granting debt discharges in chapter 13 (reorganization) and chapter 7 (liquidation) bankruptcy proceedings. To do so, we have collected a random sample of 9,526 bankruptcy petitions. As race is not reported on court documents directly, we use information on name and zip code to calculate a Bayesian-likelihood estimate of individual debtors' race. Controlling for debtors' demographics and financial situation, results show that white judges are 21% more likely to dismiss the chapter 13 petition of an African American debtor relative to a white debtor. In chapter 13, judges have the most discretion and debtors actually appear in front of the judge at a confirmation hearing. We do not find significant effects for chapter 7 cases. Bankruptcy judges who were appointed by a Republican president are less debtor-friendly than those appointed by a Democrat.

Number of Pages in PDF File: 41

Keywords: Personal Bankruptcy, Household Finance, Judges, Discrimination, Law and Economics

JEL Classification: J71, K35, D12

working papers series