An Unlucky Number for Blacks

Social psychologists have been studying racism for 65 years, but the emphasis has always been on prejudice rather than discrimination. The relative lack of convincing research on institutional racism allows those in positions of authority to deny its existence. A new article by Braucher, Cohen and Lawless (2012)--two lawyers and a social psychologist—examines discrimination in the context of filing for personal bankruptcy. It's complicated, but please bear with me.

A person or family filing for bankruptcy has two options, Chapter 7 and Chapter 13 bankruptcy. Chapter 7 is a relatively quick process by which, in theory, debtors liquidate their assets, pay off creditors where possible, and begin again with a clean slate in about six months. The asset liquidation is largely symbolic, however, since about 90% of Chapter 7 filers have no assets after exemptions are excluded. Chapter 13 is a longer process by which debtors keep most of their assets, but agree to pay their debts over a three to five year period according to a schedule arranged by the court. About two-thirds of families who elect Chapter 13 fail to complete the process and are forced to start over under Chapter 7. Chapter 13 bankruptcy generates $2500-$3000 in lawyer's fees, while Chapter 7 bankruptcy typically costs about $1000.

Since Chapter 7 bankruptcy forgives the debt, why would anyone choose Chapter 13? One practical reason is that they may have assets worth protecting. In addition, some people may feel a moral obligation to pay back their creditors. Since most people have little knowledge of bankruptcy law, the researchers presumed that they rely heavily on their lawyers for advice on “chapter choice.”

Previous research had suggested that African-Americans were more likely to elect Chapter 13 bankruptcy than other ethnic groups. Braucher and her colleagues did two studies—a survey and an experiment. Study 1 was a national survey conducted by the Consumer Bankruptcy Project of 2314 randomly selected households that filed for bankruptcy in 2007. As expected, the rate of Chapter 13 bankruptcy was significantly higher among African Americans (54.7%) than among all other groups (28.2%).

The survey included 20 control variables that were intended to evaluate alternative explanations of the race difference. The control variables were in four categories: (1) financial characteristics, such as total assets; (2) informal attempts to negotiate debt load; (3) demographic characteristics, such as number of adults in the household, and (4) local legal culture, represented by the percentage of Chapter 13 filings by non-African-Americans in the same district. The relationship between race and type of bankruptcy was still significant after all these control variables were statistically held constant.

A survey is a correlational study; it does not indicate the cause of the race difference. Was it self-selection or attorney bias? The authors hypothesized that lawyers were channeling Black clients into the less advantageous Chapter 13. However, it's possible that Blacks, for some unknown reason, prefer Chapter 13. Study 2 was an experiment which ruled out debtor choice as an explanation.

A total of 262 randomly selected bankruptcy attorneys were given a detailed vignette describing the financial situation of a hypothetical young married couple seeking bankruptcy and asked how they would advise them. Attorneys were randomly assigned to one of three racial conditions. While no explicit mention of race was made, the clients were identified as either “Reggie and Latisha” (Black), “Todd and Allison” (White), or by the initials “R. and L.” (Control). Everything else about the vignette was the same. Because attorneys might make different assumptions about the preferences of Black and White clients, a second variable was added. Within each race of client, one-third of the questionnaires specified that, although they hadn't decided, the clients were leaning toward filing under Chapter 7, one-third said they were leaning toward Chapter 13, and one-third said they had no preference.

The results were striking. 47% of the lawyers advising Reggie and Latisha recommended that they file under Chapter 13, while only 32% of the lawyers advising Todd and Allison recommended Chapter 13. In the control group where race was not specificed, 36% of the lawyers favored Chapter 13. Surprisingly, the couple's initial chapter preference had no significant effect. In fact, more attorneys suggested that the Black couple leaning toward Chapter 7 file under Chapter 13 (45%) than recommended it to the White couple that initially favored Chapter 13 (37%)!

In addition, the attorneys were asked several questions about how they perceived their hypothetical clients. The questions measured the clients' competence and whether the lawyers thought they had “good values.” The white couple was perceived not only as more competent, but also as having better values, when they preferred Chapter 7. The black couple, on the other hand, was rated as having better values and greater competence when they preferred Chapter 13.

The attorney's recommendations accounted for about two-thirds of the real world difference in chapter choice between African-Americans and Whites in a situation similar to that described by the vignette. This is consistent with the authors' assumption that the attorney is the primary factor in chapter choice. The attorneys' recommendations were racially biased. The option they were more likely to recommend to Black clients was less advantageous to the client, but of more benefit to themselves, since they received a higher fee.

This is consistent with previous research showing financial discrimination against Black customers. For example, they pay more for new and used cars, and receive less favorable terms when applying for a mortgage than Whites with the same assets. Apparently African-Americans are assumed to be less sophisticated customers, and salespeople attempt, often successfully, to take advantage of them. The present study also suggests to me that these lawyers rate both Black and White clients more favorably when the client's behavior conforms to their stereotypes: that Blacks are altruistic but stupid, and that Whites shrewdly pursue their self-interest with little concern for others.

A New York Times article on this research included comments on the studies which downplayed the possibility of discrimination against Blacks. The president of the National Association of Consumer Bankruptcy Attorneys said, “The study does not adequately control for the numerous complex factors that dictate chapter choice.” (In other words, “Give it up, social scientists; our work is just too complicated for you to study.”) A representative of the Woodstock Institute, a research and policy group, appeared to blame the victims by suggesting that Blacks' choice of Chapter 13 was explained by “a combination of higher attorney's fees and a filer's desire, or advice that elevates a filer's desire, to preserve as many assets as possible.” He failed to explain why a group known to have fewer assets is more interested in preserving them. More importantly, while Black preference is a possible explanation for the results of Study 1, it is ruled out as an explanation for the discrimination found in Study 2.

Incidentally, this is one of many studies that has subtly but successfully manipulated race by using first names frequently chosen by Black and White families. The discrimination found in these studies makes it clear that when parents choose stereotypically Black names, they handicap their children in certain situations.