Chicago’s Bankruptcy Boom — ProPublica

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This week we published a deep look why bankruptcy often fails to relieve black Americans struggling with debt. The story focused on Memphis, Tennessee — the nation’s bankruptcy capital — where black debtors have been funneled for generations into Chapter 13, which typically requires five years of payments that most have none. chance to do.

Indebted consumers outside the South file massively under Chapter 7, which clears most debt, our history and analysis shows.

But in recent years, there has been one big geographic exception: Chicago.

In northern Illinois, Chapter 13 filing rates have risen sharply in black areas

Chapter 13 Filings per 1,000 Population – Black Census Tracts vs. White Census Tracts

Source: Department of Justice data, ProPublica analysis by Hannah Fresques

Due to a boom in Chapter 13 filings, the U.S. Bankruptcy Court for the Northern District of Illinois, which includes Chicago, saw more consumer filings in 2015 than any other district in the nation.

Residents of the district’s black communities almost exclusively fuel this increase, where the rate of deposits has doubled since 2009. This racial disparity is not unique to the Chicago area, but there is virtually no other place in the country. where the gap is quite wide. . Even controlling for income, the odds of a black debtor in the Northern District of Illinois choosing Chapter 13 over Chapter 7 were about four times that of a white debtor. And, as we found nationally, black debtors were less likely to complete their Chapter 13 plans and see their debts paid off.

The reason this happens can be attributed to the kind of mundane financial problem that many Americans face: traffic tickets. In Chicago, failure to pay for these tickets can result in a driver’s license being suspended or a car being impounded, crucial lifelines for many low-income families.

In our analysis, we note that the increase in Chapter 13 filings is primarily due to low-income black debtors unable to pay notes owed to the City of Chicago. By filing under Chapter 13, these people are trying to keep their car or license. Chapter 13 stops foreclosures and stays as long as debtors can continue to pay, but data shows most cannot. We also found that law firm Semrad, also known as DebtStoppers, played an outsized role. The firm’s customers are largely black and file massively under Chapter 13. From 2012 to 2015, DebtStoppers accounted for approximately 40% of Chapter 13 filings by debtors who lived primarily in black areas.

Semrad did not respond to multiple requests for comment.

Although the attorney fee for a Chapter 13 in the district is $4,000, debtors typically pay very little of that — between $0 and a few hundred dollars — up front. The rest is paid through Chapter 13 payments over time. As we detailed in our storythis encourages bankruptcy attorneys to file even when the prospects for debt relief for their low-income clients are dim.

You can read our history on Memphis, which clearly has implications for Chicago as well, here. Our data analysis explores both racial disparities in bankruptcy nationally and more locally in Memphis and Chicago areas.

News app developer Mike Tigas contributed to this story.

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