Race and Bankruptcy: Explaining Racial Disparities in Consumer Bankruptcy

55 Pages Posted: 24 Mar 2018 Last revised: 1 Sep 2019

See all articles by Edward R. Morrison

Edward R. Morrison

Columbia Law School

Belisa Pang

Yale University - Law School

Antoine Uettwiller

Imperial College Business School

Date Written: August 29, 2019

Abstract

African American bankruptcy filers are more likely to select Chapter 13 than other debtors, who opt instead for Chapter 7, which has higher success rates and lower attorney fees. Prior scholarship blames racial discrimination by bankruptcy attorneys. We present an alternative explanation: Chapter 13 offers benefits, including retention of assets such as cars and driver's licenses, that are more valuable to African American debtors because they have relatively long commutes. We take advantage of a 2011 policy in Chicago, which suspended driver's licenses of consumers with large traffic-related debts. The policy produced a large increase in Chapter 13 filings, especially by African Americans. Two mechanisms explain the disparate racial impact: African Americans were more likely to have traffic-related debts and they incurred greater costs from license suspension due to their relatively long commutes. When we match African Americans to other debtors with similar commutes, we find no racial difference in the propensity to file for Chapter 13. These findings suggest that racial disparities in bankruptcy reflect racial disparities in commuting.

Keywords: Bankruptcy, Race, Chapter 13, Household Financial Fragility

JEL Classification: D14, D12, G33, K35, R20

Suggested Citation

Morrison, Edward R. and Pang, Belisa and Uettwiller, Antoine, Race and Bankruptcy: Explaining Racial Disparities in Consumer Bankruptcy (August 29, 2019). Columbia Law and Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=3137112 or http://dx.doi.org/10.2139/ssrn.3137112

Edward R. Morrison (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

Belisa Pang

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

Antoine Uettwiller

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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