Is the U.S. Bankruptcy Code Racist?

be equipped to give black debtors a fresh start. My guest is Michelle Dickerson, a professor at the University of Texas at Austin Law School and an early researcher on race and bankruptcy. Michelle, dozens of academic studies show that Blacks file for bankruptcy more than any other racial group, yet get less permanent relief. Can you explore there are

a number of reasons why that may be happening. The reason I phrase the answer that way is because the studies themselves weren't able to pinpoint exactly why that is occurring. But one thing that we're seeing painfully during COVID right now is that Blacks in this country for a whole host of reasons, meaning because of systemic racism, profile worth financially lower savings rates, lower household income, higher students loans rates, so it's not terribly surprising that blacks would have higher

filing rates. One of the academic studies a few years ago suggested that blacks were being steered into Chapter thirteen, which is a bankruptcy plan where you repay your bills or like some of your bills over a five year period, as opposed to Chapter seven, which is a much quicker and easier process, so to the extent that blacks profile as more financially fragile, and then they pushed into chapter

thirteen and told try to repay your bills. That would explain, at least for me, why you have more blacks filings but fewer blacks actually getting the release that bankruptcy is in series supposed to provide. Why do you think blacks are being steered to chapter thirteen if chapter seven would work better for them? Again, I'll say that the studies were not able to say why. Lots of theories, and

again they're just series. One theory could be that the bankruptcy professionals, whether we're talking about lawyers or trustees or judges, may have concluded that somehow chapter thirteen is better for blacks the chapter seven. That makes no sense because, at least for the academic studies, the one that was done

about five or six years ago actually probably closer to ten. Now, it certainly seemed as if whites were being steered away from chapter thirteen and two chapter seven, whereas blacks were being steered two chapter thirteen and away from chapter seven. Whether racial biases are playing a role, we don't know, at least we don't know from the studies, but it is hard to imagine why it would be deemed better for blacks to attempt to repay their bills but not

for whites to attempt to repay their bills. So, for those who are not in the know, would you explain a little more about the differences between chapter thirteen and chapter seven and why more people actually get out of bankruptcy with chapter seven. Yeah, chapter seven is a much quicker process to sort of, you know, phrase the colloquially. This is not what the bankruptcy Code says, but essentially the debtor says, Look, I don't have much property that I'm trying to keep. I want this to be a

quick and simple process. Here's the little property that you are allowed to get as creditors that the code says I don't get to keep. Take a little amount that you're allowed to get creditors, and discharge my debt. So it's a quick process. In contrast, Chapter thirteen, even if it is successful and the success rates are not great in terms of the number of people that actually make all of the payments over five year periods. But Chapter

thirteen can last for up to five years. That's a very different process and a very different thing also psychologically, because effectively, in Chapter thirteen, you have to be able to get I am going to be able to repay a certain percentage of my bill over up five year period, not knowing that am I going to have the same jobs in five years? I mean, imagine if people had entered into a Chapter thirteen plan in November of nineteen

only to have COVID hit and they lose their jobs. Well, COVID obviously is sort of the once in a lifetime

at least we cope economic and health pandemic. But for lots of people blacks and other sort of middle income, lower income workers, there isn't great stability in terms of their employment So the notion that you can commit right now that you know you're going to be able to make a certain amount of plan payments over the next five years is given our current economic climate, an unrealistic expectations. There's been a lot of talk about systemic racism in

the justice system. Is there a racist element in the US Bankruptcy Code? Intentional? No, But if you look at the way the code is structured for human beings that follow for bankruptcy, there are clear biases, and it's just so happens that those biases favor a certain profile, which I have called in the past the ideal debtor. So, if you are a homeowner and you want to be able to restructure your debts to keep your home, bankruptcy

is a good thing. Well, when you look at the differences in the home ownership rate for white, blacks and Latinos, that favors white because white are more likely to own homes than blacks and Latinos. If you look at other things like the type of property that you're allowed to keep, intangible property like a retirement of pension, well, if you look at the pension participation rates, Whites are disproportionately likely to have both an employer provided pension and also private

saving through an i RA. So the code has this model of who they think the debtor is that is deserving of protection in bankruptcy, and when they created the provisions to protect certain types of debtors, a certain debtor was in mind, and that debtor is not a typical Black or Latino America. There's been a lot of news about how COVID nineteen has disproportionately hit the black community as far as number of cases, but it's also hit

the black community more harshly than whites economically. So during the pandemic, of black owned business is closed compared to seventeen percent of white owned businesses. How do you account for that that's a huge difference. Well, one thing, and this isn't sort of a bankruptcy results, but one thing that happened is when at the very beginning of the p P P Blane program, there were lots of problems as we all painfully saw a play out, certainly in

the media. And if you're a small um sort of mom and pop are so propriet to black business and you don't and you didn't have a longstanding relationship with the lender, it was highly unlikely that you were going to get one of those loans. They tried to fix some of those problems in the second waves of the p PP loans, but the simple reality is that if you are someone that isn't being favored by a lender, and you weren't favored by a lender pre COVID, then it was going to be hard for you to get

those loans. And also, uh, there there are some studies out there that indicate that black businesses in general, notwithstanding all of the anti discrimination laws, have a harder time getting access to capital and particularly to low interest rate blows. So I was surprised to learn that personal bankruptcy filings have dropped rather than spiked during the pandemic. A big drop of is that because people aren't getting to their lawyer's offices or is there you know a reason why

bankruptcy filings would have dropped? Will There would be a host of reasons, and again I'm somewhat speculating. First, you can't get to your lawyer's office. Second, your lawyer's offices or lawyer's offices are backed up um But third, to the extent that someone is going to fill for Chapter thirteen and they have no income. There's really no reason to propose a plan when you know that you don't have a job and you won't be able to propose

any planned payments. So, I mean, it could be a sort of a whole range of reasons why people haven't filed. It doesn't mean, of course, that there is not economic desperation that's out there. Um. And the other thing I would add is for some of those folks, that could also be that they have filed in the last few years and therefore they're not eligible to refile. But it is sort of a bit um. It seems to be a bit of a disconnect that we're in this horrendous

economic crisis and yet bankruptcy filings are down. I will be surprised if they remain low, but it is a bit shocking that they're still long now. There was some relief for those already in Chapter thirteen from the Cares Act. They allowed you to modify your plans, extend the time of your Chapter thirteen bankruptcy things like that. Was there enough relief so to the extent that you're going to extend and you have no income, the extension really doesn't help you and also one of the things that I

have said repeatedly is bankruptcy works. Well, if you have sort of a one off problem, you know, you have an unexpected financial catastrophe and you can't afford to pay it, you file for bankruptcy, you're able to get that discharge. The problem that we're seeing now with America, certainly the middle class and also to some extent our lower income

workers as well, is there is instability. And so even if you get an extension or if you're told you can file for bankruptcy, if you don't know that you are going to have any income to repay any bills Interchapter thirteen plans, there's no reason to file. And again, as I said earlier, the extension doesn't help you if you have no income to pay. Are there any solutions to help make bankruptcy a better prospect for black debtors. Well, I've been on a pair for the last couple of years.

One of the things that we don't know in bankruptcy is anything about race because they're not required to collect that data. And so the academic studies have been terrific, but these are professors who went about to collect the data. There's absolutely no reason that the Administrative office can't say that bankruptcy courts, you know, as part of filing for bankruptcy, we need to have information about race because it's hard

to figure out exactly what's going on in bankruptcy. If we're not keeping track of what's going on in bankruptcy, and so we want to know what's going on with respect to race, then we need to count it. And for example, if we then see that, you know, blacks are disproportionately you know, three times, it's like that I'm just making up a number here three times, it's likely to be pushed into a more expensive, longer term Chapter thirteen than to be pushed into a shorter, cheaper Chapter seven.

We can then go about asking the trustees officers, to judges, the lawyers, why are you doing this? But one of the problems that we have right now is we don't have comprehensive data. That was another surprise, because it seems like every form you fill out, any official form, they ask about your race or ethnicity. So it's kind of odd that they don't ask that in the bankruptcy court.

You can say, odd, I hope it is not intentional, but certainly when we see what's going on now with the census, and you know, ending things early in the potential of an undercount. One wonders if no one wants to see the data. But there's absolutely no reason. You're right. I mean every time we see out of perform about almost anything there as you know what, gender, which race, but not in bankruptcy. Thanks for being on the Bloomberg

Laws shell. Michelle. That's Michelle Dickerson, a professor of bankruptcy law at the University of Texas at Austin Law School. What would a president Biden mean for employers and employees, at least according to his policy initiatives, Well, if you live in California, you may already have a notion of what the legal landscape is likely to be. Joining me is employment law expert Amphony on c, a partner at

Proscouer Rose give us an overview. Will change as in the Biden administration in employment laws benefit employers or employees? I think the changes that are proposed will overwhelmingly benefit employees and in particular labor unions. Many of the proposals fulfill a wish list that organized labor has had for many years. Indeed, in some cases decades, all of which are addressed in some way or another by the Biden proposals.

So I guess by indirect association, employees will be benefited by that, but principally labor unions will be assisted and aided by much of the legislation that is proposed by the prospective Biden administration. Unions have been losing power for years, even as if freeing court has added to their woes. Is it even possible to dial that back? Well, that's

really what much of this legislation looks like. It appears to be a rearguard action on the part of labor unions to try to at least hold on to the percentage of the workforce that they currently represent, and perhaps even reverse the trend that has been going on since nineteen fifties, which has seen consistent reductions in the number and percentage of employees that are represented by labor unions. We are in a situation today in the United States

where approximately ten percent of the workforce is unionized. That's down from over in the and if you break down that ten percent that exists today, that's only about six of the private sector and approximately a third of the public sector. So public employe unions are really quite robust still in today's environment. But where unions have really lost ground is among private sector employers. What do you see as some of the most important changes that would directly

affect unions? Sort of job one, if you will. The unions have been in effect. This was true in the early years of the Obama administration. To try to get this pass as well, something known as card check. The proposed legislation sometimes goes by the acronym f E f C A, which stands for the Employee Free Choice Act. It's somewhat of an ironic name for it because really what it does is it eliminates the need for elections

in unionization campaigns. Today, what we have is, if you have a non unionized workforce, the union needs to qualify to have an election, which is federally supervised and by the National Relations Board, And of course a union wins that election, the employer and the employees have union then collect the bargaining takes place. The Employee Free Choice Act

approaches the situation somewhat differently. It allows union officials organizers to get employees to sign cards without there being any election, without there being any campaign and if the union can get enough cards the majority of the workforce to sign these cards. UH. And of course it's very difficult to tell what the circumstance center which UH those cards are signed. That there could be threats, there could be promises that

are unmonitored by the government, unmonitored by the employer. But if if the union shows up with plus one of those cards, the union exists at the union will then be subject to collective bargaining with the employer and there will be no election. So, although it's called the Employee Free Choice Act BAC, employees will be deprived of the right to have an election in the event that the percent plus one cards are gotten by the union behind

the scenes. Usually, what about right to work? States? Will that sept interfere. Most union policy involving collective bargaining rights, etcetera. Exists on the federal level, but as a result of along of the Taft partly Acts was passed in the nineteen fifties. UH. There is the right for and has

been amended. There's the right for states to regulate some of the aspects of this, and approximately twenty seven states in the United States have what are called right to work laws, and essentially what they do is they prohibit so called union security clauses. Union security clauses say that anybody who works and gets a job in this workplace, whether they belong to union or not, must pay union dudes.

And in those states seven or so that have these right to work laws, that kind of provision is illegal. One of the proposals in the Biden Plan is to make it illegal for states to have right to work laws, meaning that these union security clauses will once again return to all states, and that no state will be able to have a different policy with respect to not recognizing the obligation of an employee, whether he or she is a member of the union or not, she who pay

union dues. And that will be obviously a significant impact, primarily in the Midwest and in many southern states that have these right to work laws. Diversity and inclusion in the workplace have been issues for some time now. How would a Biden administration promote those policies. It's interesting I practice in California, and many of the proposals in the Biden Plans come almost directly from the laws and the policies that exist here in California. For that are or worse.

One of the primary tenets of the Biden Plan is something called the Paychecks Fairness Act, which would enact on the federal level for therefore would apply to all states, a sort of supercharge bill that would address wage disparity on the basis of sex. Both California and New York already have fairly robust laws with respect to this issue, and this would again federalize that so that it would

apply in all jurisdictions. What it would do, among other things, is narrow the employer defenses that would exist for explaining or trying to defend against who wage disparity claims. UH. It would also restrict employers from preventing employees who might otherwise discuss wage information. There are already our provisions about that in some statutes, but this would elevate that so

that employees could discuss wage information among themselves. It would increase civil penalties or employers that violate the provisions, and also importantly, it would require employers to provide compensation data to the e o C, which is the federal anti discrimination agency. Employers would have to break down employee populations by race, sex, and national origin. Again, many of the aspects of that already exist in California and New York.

Another really major and important anti discrimination civil rights provision is going to be called the Equality Act. And what this would do with prohibit discrimination on the base of sexual orientation or gender identity on the federal level. Now, by the way, there is no statutory formulation on that topic. Many many states already have anti discrimination provisions that touch

on sexual orientation and gender identity. But to some extent, this proposed Act has been overtaken by events because we know you've reported in past shows of the United States Supreme Court in June decided a case called bow Stock versus Clayton County, Georgia. And in that case, the United States Supreme Court decided by interpreting the existing statutory language from titled Southern to include anti discrimination provisions that aren't

expressly stated in the statute. So, to some extent, the Equality Act has become less of a major priority because the Supreme Court has done a happy lifting on that already by interpreting existing law to include anti discrimination provisions based on sexual orientation and gender identity. Despite the CARES Act, a lot of employees right now are having trouble with paid sick and family leave during COVID nineteen, and there

have been a lot of lawsuits filed. How would the Biden administration deal with those on a more permanent level. There is another proposed piece of legislation called the Healthy Families Act that would require employers to provide paid sickly, which again is already mandatory and telep barn in many

other major cities in some other states. Specifically, the bill would require that employers for fifteen or more employees would need to provide paidsickly for employees to use for themselves in their families, and they will earn it at a rate of one hour of paid sickly for every thirty hours worked. People require employers with fewer than fifteen employees to write either that rate of paidsickly or at least

fifty six hours of unpaid sickly. So again, this would federalize an initiative that already exists on a number of statute books in the state and local levels. Changes in technology will continue to eliminate jobs for many workers. You don't want to stop progress, So how would Biden deal with those kinds of changes? Among other things? If the laws that are proposed and the policies that are proposed

by the potential by administration get passed. It would require employers that receive federal funds to give employees notice of technology changes in automation that might affect them. Biden would also seek to claw back certain tax benefits and public funding from companies that would offshore American jobs. Some of these is not a great deal specificity about, but that is something that clearly is contemplated as well. How much are these proposals like what California already has in law, Well,

it's interesting. Some of them are provisions that have been tried in that have failed for one reason or another. For example, one of the important Democratic backed provisions, which isn't specifically stated in the Biden proposals, but which he presumably would be receptive to, involved the outlawing essentially of arbitration agreements in the employment setting, as well as those

stuttings in some other contexts as well. But with respect to employment, this means that employers and employees would no longer be able to lawfully enter into arbitration agreements by which beute that might be heard now in front of an arbitrator involving discrimination, harassment, wrongful termination, or whatever it may be, would have to be heard by a jury, and of course that would result in a huge number of increased claims being brought in front of juries all

over the country. I think that would significantly clawed courts. But this has been again on the wish list, not of unions in this case, but on the part of the trial lawyers that represent employees, because they obviously would much prefer to be in front of a jury in most of these cases rather than in front of a retired judge or senior employment law practitioner who typically populates

the arbitration ranks. And so one of the statutes that has already passed the House and has support among Democrats in the Senators something called the Forced Arbitration Injustice Repeal Act, the Fair Act, And what that would do would make pre dispute arbitration agreements illegal in California and everywhere else. I say California, because we did pass a law a year or so ago, as in New York, to do the same thing to outlaw arbitration, but those provisions came

up against the federal law. The Federal Arbitration Act, and in both instances, federal courts struck down those state laws. So what this would do would federalize that rule, which is that there would no longer be any arbitration between employers and employees in these cases. Another major aspect of what some travelers have been advocating for a long time is the elimination of class action waivers, which can become

fairly commonplace in California and elsewhere. One of the things that is usually a feature of an arbitration agreement is a provision that states that the employee agrees not to participate or lead a class action or a collective action against the employer. The United States Supreme Court has determined that those are legal. That rule would be repealed by

something called the Protecting the Right to Organize Act. One of the provisions in that act states that class Act waivers will no longer be enforceable, meaning that employees will be free to cloud class actions against their employers and to participate in such a class action. Thanks so much for being on the Bloomberg Last Show, Tony, That's Anthony on cd A partner Proskauer Rose. I'm June Grosso. Thanks

so much for listening. And please tune into The Bloomberg Last Show every week night to ten pm Eastern on Bloomberg Radio than