It's something you hope never happens to you. But 117,630 families in Cook County have faced it in the last five years: bankruptcy.
But in Cook County, many black families aren't getting that help. They're filing for bankruptcy, but instead of getting a fresh start, they may be digging their own grave. That's because they're disproportionately choosing a kind of bankruptcy that's supposed to be rare and offers less relief from burdensome debt. Why? Local lawyers and financial counselors say they may be being steered into Chapter 13 bankruptcy.
That's the premise of this month's feature--Unlucky 13.
Chapter 13 bankruptcy is probably one of those things you've heard about or seen on a TV commercial but didn't really know what it meant. At least, that's what I was like before I started writing this story. To me, bankruptcy meant you didn't have any money. That's a real bummer, so it made sense that most people didn't want to file bankruptcy unless they had to.
But what I learned is that bankruptcy is supposed to be a financial absolution--a way of admitting that you have more debt than you can pay and wiping your slate clean. Most filers do this under Chapter 7 bankruptcy. Chapter 7 uses any assets you have to try to pay off your debtors, which means people sometimes lose their house or their car. But after it's over, in a matter of months, any debt they had is forgiven, and they get to start over.
That's most people. But what a Woodstock Institute report found is that a huge number of people in Chicago's African-American communities are choosing another form of bankruptcy--Chapter 13. While nationally, about 25 percent of bankruptcy cases are Chapter 13, in Chicago's African-American communities, that number is 47.9 percent.
Chapter 13 is more like a payment plan than debt forgiveness. You get to keep your assets--which is why many people trying to save a home often choose Chapter 13. But you have to pay your debt out of your future income. The bankruptcy court sets up a payment plan for you--a lump sum you have to pay every month. At the end of three to five years, as long as you paid every month on time, whatever debt you have left is wiped clean.
In theory, it seems pretty fair, right? But think of it this way: If a person can't pay their debts to begin with--credit card payments, mortgage payments, utility bills--how are they going to make a hefty monthly payment to the bankruptcy trustee?
That may be why only about 10 percent of Chapter 13 cases succeed. And many people who don't fail end up farther behind than they started off.
Why is this happening? Well, some attorneys in Chicago think some law firms are steering their clients into Chapter 13 because they can make more money off them.
"I think these firms, these attorneys would be trying to convince
anybody--white, black--that [Chapter] 13 is the way to go," said lawyer David Siegel.
"They're not singling out or targeting blacks. It just so happens that
blacks make up a bigger portion of their clientele."
This is one of those stories where understanding the details of what's going on can often get in the way of outrage over what's happening. It's complicated, but it's also worth understanding. Because as a society, we've set up bankruptcy to be a way for people to get out from under debt--not further buried beneath it. So when lawyers are targeting our most vulnerable communities and using what we've set up to be help as a way of making a quick buck and leaving their clients worse off, that's a problem.
Read our investigation--Unlucky 13--in the latest issue of The Chicago Reporter.