Black people in the U.S. with debt are more likely to file for bankruptcy protection, if they can afford to pay for the cost of filing, than any other racial group, according to studies, researchers and legal experts. Such individuals also are twice as likely among all bankruptcy filers to pick a more costly type of personal bankruptcy, known as chapter 13, studies show, the Wall Street Journal reported. These patterns have created a situation where Black people pay more for bankruptcy, yet are less likely than other households to benefit from the longer process, researchers say. As government aid extended during the pandemic eases, more people of color are expected to face financial distress due to the loss of wages, unemployment or high medical bills, economists and bankruptcy lawyers say. “The racially disparate impact of bankruptcy and the uneven number of filings shows that this pandemic is also having a heavy impact on the finances of Black and Brown Americans,” said Sen. Chris Coons (D-Del.). The main issue, researchers and legal experts say, is the prevalence of racial inequalities affecting personal bankruptcies, a system that is intended to offer debt relief to those in deep financial distress. Bankruptcy trustees, appointed to collect payments from debtors and make distributions to creditors, say that the letter of bankruptcy laws are race neutral and view consumers equally. The federal court system doesn’t collect demographic information — such as race, gender and age — leaving researchers to analyze national bankruptcy trends by using ZIP Codes, census data for individual court districts and surveys. “As long as there’s structural, systemic racism in society, those drivers will continue to push people of color into the bankruptcy system, and they will still be worse off than their white counterparts,” said David G. Peake, a chapter 13 trustee in Houston. Black people who have filed for chapter 13 bankruptcy are less likely to obtain a discharge of their debt, according to a report from the American Bankruptcy Institute’s Commission on Consumer Bankruptcy. Still, they choose to consolidate and restructure their debt under chapter 13, so that they can repay on an installment basis while retaining possession of their homes, cars and other assets. Still, the most popular option for those seeking personal bankruptcy protection is chapter 7 liquidation, a process in which debtors often give up any assets they may have, such as homes and cars, to pay creditors. Chapter 7 allows them to get rid of debts, such as credit card bills, and doesn’t require filing a repayment plan. Most chapter 7 debtors have no assets to offer up, said Robert Lawless, a professor at the University of Illinois College of Law, who also served as the reporter for ABI’s commission on consumer bankruptcy.
Alexandria, Va.—Total commercial chapter 11 filings in May 2021 decreased 66 percent from the previous year, according to data provided by Epiq. Commercial chapter 11 filings totaled 246 in May 2021, down from the 725 commercial chapter 11 filings in May 2020. Total commercial filings decreased 31 percent in May 2021, as the 1,787 filings were down from the 2,599 total commercial filings registered in May 2020. The 34,760 total bankruptcy filings in May 2021 were down 13 percent from the 39,993 total filings in May 2020. Total consumer filings decreased 12 percent in May 2021, as the 32,973 filings fell from the 37,394 consumer filings registered in May 2020.
“Continued stabilization efforts by the federal government, forbearance by lenders and sustained low interest rates have helped keep many businesses and households afloat during the crisis,” said ABI Executive Director Amy Quackenboss. “As the pandemic relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy.”
A separate analysis on ABI’s SBRA Resources webpage showed that the 2,000th case was filed in May under the new subchapter V of chapter 11 of the Bankruptcy Code, established by the Small Business Reorganization Act of 2019 (SBRA). The SBRA went into effect on February 19, 2020, to provide Main Street business debtors with a more streamlined path for restructuring their debts. The CARES Act was subsequently enacted on March 27, 2020, which increased the eligibility limit for small businesses looking to file under the SBRA’s subchapter V from $2,725,625 of debt to $7,500,000. The threshold was originally scheduled to return to $2,725,625 after one year, but was extended to 2022 with the enactment of the COVID-19 Bankruptcy Relief Extension Act on March 27, 2021.
May’s commercial chapter 11 filings represented a 14 percent decrease from the 287 filings in April 2021. Total commercial filings were also down 14 percent from the April 2021 commercial filing total of 2,083. Total bankruptcy filings in May represented a 15 percent decrease from the 40,913 total filings recorded the previous month. Total noncommercial filings for May also represented a 15 percent decrease from the April 2021 noncommercial filing total of 38,830.
The average nationwide per capita bankruptcy filing rate in May was 1.41 (total filings per 1,000 per population), a slight decrease from the 1.43 filing rate during the first four months of the year. Average total filings per day in May 2021 were 1,738, a 13 percent decrease from the 2,000 total daily filings in May 2020. States with the highest per capita filing rates (total filings per 1,000 population) in May 2021 were:
1. Alabama (3.20)
2. Nevada (2.93)
3. Tennessee (2.55)
4. Delaware (2.40)
5. Indiana (2.29)
ABI has partnered with Epiq in order to provide the most current bankruptcy filing data for analysts, researchers and members of the news media. Epiq is a leading provider of managed technology for the global legal profession. To view the full monthly statistical tables provided by Epiq, be sure to visit ABI’s Newsroom.
For further information about the statistics or additional requests, please contact ABI Public Affairs Officer John Hartgen at 703-894-5935 or jhartgen@abiworld.org.
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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abi.org. For additional conference information, visit http://www.abi.org/calendar-of-events.
Epiq, a global technology-enabled services leader to the legal services industry and corporations, takes on large-scale, increasingly complex tasks for corporate counsel, law firms, and business professionals with efficiency, clarity, and confidence. Clients rely on Epiq to streamline the administration of business operations, class action and mass tort, court reporting, eDiscovery, regulatory, compliance, restructuring, and bankruptcy matters. Epiq subject-matter experts and technologies create efficiency through expertise and deliver confidence to high-performing clients around the world. Learn more at https://www.epiqglobal.com.
A Monmouth County, N.J., man made his initial court appearance yesterday for allegedly filing a fraudulent bankruptcy petition claiming he had limited assets and hundreds of millions of dollars in liabilities, when, in fact, he had $2.9 million in a hidden bank account, Acting U.S. Attorney Rachael Honig announced in a press release. Elia Zois is charged by complaint with one count of concealment in bankruptcy. He is scheduled to appear this afternoon by videoconference before U.S. Magistrate Judge Leda Dunn Wettre. According to the complaint, Zois was one of five partners in “Business-2,” a New Jersey-based health care organization that maintained approximately 50 senior living facilities throughout New Jersey, Michigan, and Wisconsin. On Feb. 6, 2019, he and his spouse filed for chapter 7 bankruptcy protection, alleging that between 2014 and 2018 he had only $9,000 in assets and $201 million in liabilities, based upon his partnership in Business-2. A forensic accounting report concluded that during that period Zois received $2.9 million in deposits into the bank account of “Business-1” — of which Zois was the sole owner — including approximately $200,000 in undeclared income after he filed for bankruptcy. The hidden account was intended to conceal a portion of his income to circumvent existing IRS liens on his known assets. The count of concealment in a bankruptcy carries a maximum penalty of five years in prison and a $250,000 fine.
