Dismissal with Prejudice? Race and Politics in Personal Bankruptcy

Abstract

We exploit the random assignment of judges in personal bankruptcy proceedings to test whether race and politics bias judges granting debt discharges in chapter 13 (reorganization) and chapter 7 (liquidation) bankruptcy proceedings. To do so, we have collected a random sample of 9,526 bankruptcy petitions. As race is not reported on court documents directly, we use information on name and zip code to calculate a Bayesian-likelihood estimate of individual debtors' race. Controlling for debtors' demographics and financial situation, results show that white judges are 21% more likely to dismiss the chapter 13 petition of an African American debtor relative to a white debtor. In chapter 13, judges have the most discretion and debtors actually appear in front of the judge at a confirmation hearing. We do not find significant effects for chapter 7 cases. Bankruptcy judges who were appointed by a Republican president are less debtor-friendly than those appointed by a Democrat.