A new study shows that African Americans are about twice as likely as whites to file Chapter 13 bankruptcy, considered the more difficult and expensive route of personal bankruptcy. The study will be published in The Journal of Empirical Legal Studies.

Even after allowing for differences in income, assets, education and homeownership, researchers found that the racial disparity between Chapter 7 and Chapter 13 bankruptcy still existed. The researchers include two law professors and one psychology professor, two of whom are from the University of Illinois.

The main difference between Chapter 7 and Chapter 13 bankruptcy is that debtors who file Chapter 13 keep most of their assets in exchange for repaying some, or all, of their debts over a period of three to five years.

Although it may sound like Chapter 13 is bad in this context, it is not necessarily so. Many people file under Chapter 13 in order to keep their homes. However, Chapter 13 repayment plans are more likely to fail than Chapter 7 liquidation. Two-thirds of Chapter 13 bankruptcy plans fail, which puts the debtors right back where they started.

The survey part of the study asked lawyers to make recommendations based on a fictional couple's profile. When indicators such as name and religious affiliation were more African American, lawyers were more likely to recommend Chapter 13 bankruptcy. Financial profiles were otherwise identical.

The study does not suggest that the choices are consciously racist, and it should not be construed to suggest that filing for bankruptcy is a bad idea. It is necessary for many people in order to achieve a fresh financial start.

Source: The New York Times, "Blacks Face Bias in Bankruptcy, Study Suggests," Tara Siegel Bernard, Jan. 20, 2012