Keywords

personal bankruptcy, racial disparities, racial bias, homophily

Abstract

We document substantial racial disparities in consumer bankruptcy outcomes and investigate the role of racial bias in contributing to these disparities. Using data on the near universe of US bankruptcy cases and deep-learning imputed measures of race, we show that Black filers are 21 and 3 percentage points (pp) more likely to have their bankruptcy cases dismissed without any debt relief in Chapters 13 and 7, respectively. We uncover strong evidence of racial homophily in Chapter 13: Black filers are 10 pp more likely to be dismissed when randomly assigned to a white bankruptcy trustee. To interpret our findings, we develop a general decision model and new identification results relating homophily to bias. Using this framework and our homophily estimate, we conclude that at least 40% of the 21 pp dismissal gap is due to either taste-based or inaccurate statistical racial discrimination.

Original Publication Citation

“Explaining Racial Disparities in Personal Bankruptcy Outcomes” with Sasha Indarte, Benjamin Iverson, and Christopher Palmer

Document Type

Working Paper

Publication Date

2023

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Associate Professor

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