No other urban county has anywhere near as many bankruptcies per person as Shelby County.
Here, there were about six personal bankruptcy filings per 1,000 residents during the 12 months that ended March 31. The average U.S. county had about one per 1,000.
None of the other 100 largest counties had more than four.
“That just makes me sad,” Jennie Latta, one of the U.S. bankruptcy judges responsible for Shelby County, said when shown these numbers. “For every one of those persons, it’s a lost dream. It’s a sense of failure.”
Shelby County’s bankruptcy rate is such an anomaly that it can’t be explained by any single reason — such as poverty — according to experts and data analysis conducted by MLK50: Justice Through Journalism. While the county’s deficits in income and wealth play a role, experts say, the numbers also reflect racial bias, insufficient public transit, an abundance of bankruptcy lawyers and the ease with which landlords can evict tenants.
The county’s lead on the rest of the country grows larger when looking just at the type of bankruptcy that’s more expensive and much harder to complete.
Over 80% of Shelby County residents choose Chapter 13 when they file. It requires debtors to devote their entire disposable incomes to monthly payments for three to five years if they want a clean slate. Since few can maintain that level of consistency, borrowers only complete this type of bankruptcy about 22% of the time in West Tennessee’s majority-Black neighborhoods, according to a 2017 ProPublica investigation into bankruptcies here.
Nationwide, about 57% of filers entered Chapter 7, which takes a few months and successfully clears debt about 96% of the time.
Shelby County had more than 10 times the national average of Chapter 13 filings per person in the 12 months MLK50 studied.
Many Memphians file Chapter 13 because it offers two primary benefits, experts said. First, while it is far more expensive in the long term, the process can be started cheaply — often with no money down — while Chapter 7 requires paying a lawyer about $1,300 upfront. Second, it lets people keep cars that they’re still making payments on, while Chapter 7 makes this difficult.
Fred Scott — who lived in hotels last year while his wife battled cancer — chose Chapter 13 when he fell behind on his medical debt, car payment and other bills because he needed his car for work.
“We had to do something in order to save a little bit of money and also keep the vehicle,” Scott said in March.
Marcelle Nia, a local bankruptcy lawyer, said most of her clients are in a similar predicament.
Although debtors might be better off giving up their cars for a clean slate in the long term, this swap could also require them to rely upon Memphis’ insufficient and unreliable public transportation system.
When Scott’s car was later stolen, he immediately lost his job since it required him to drive.
Latta, who has been on the bench since 1997, said better public transportation would make a “huge difference” in the county’s number of Chapter 13 filings.
Of course, Latta said, the $1,300 is also a major factor, since most debtors don’t file for bankruptcy until they’re completely out of cash.
“Because they cannot afford to pay their attorneys up front … (people use Chapter 13 and) pay $2,000 more and have their cases dismissed (far more often),” says a 2017 study by Yeshiva University professor Pamela Foohey, now-U.S. Rep. Katie Porter and Robert Lawless, a professor at the University of Illinois.
To stop this, Lawless said the federal government needs to reform the bankruptcy code to make relief more accessible to people who don’t have $1,300 lying around. He’s currently working with Sen. Elizabeth Warren and others to push for such reform.
On top of Shelby County’s poverty and lack of mass transit, its racial demographics appear to play a major role in its number of bankruptcies. About 54% of county residents are Black.
The percentage of Black residents in a given U.S. ZIP code is a strong predictor of the number of Chapter 13 bankruptcy filers there, even when accounting for other demographic variables. When MLK50 analyzed the effects of race, college education, homeownership, unemployment, labor force participation and median income on Chapter 13 rates across the country, the percentage of Black residents and the labor force participation rate had the largest effects.
And while Shelby County has more poverty and fewer public transportation options than many urban counties, it isn’t unique in either of those categories. Debtors elsewhere are often in just as bad of a financial situation but still file Chapter 7. For this reason, Lawless attributed much of the city’s Chapter 13 numbers to a legal culture that appears to take advantage of the city’s residents — particularly its Black ones.
“(Shelby County) is a tremendous outlier,” said Lawless. “It’s hard to think of a reason why (that is) except for legal practice. … I have no question that there are attorneys in Memphis doing the right things by their client. … And I have no question that there are attorneys in Memphis that are taking advantage of people.”
In 2017, ProPublica investigated why so many Chapter 13 bankruptcies were filed in the U.S. Bankruptcy Court for the Western District of Tennessee. Their investigation found the numbers are largely attributable to lawyers who make their living off of the higher Chapter 13 fees and steer Black clients, in particular, to this type of bankruptcy due to racial bias, paternalism and other factors.
“A Chapter 13 shows people how to live without buying things for that 60-month plan,” local lawyer Arthur Ray told ProPublica. “With a Chapter 7, wham bam, it’s over, and they’re back to the same old thing, the bad habits that got them in trouble to begin with.”
The investigation found that three large law offices in Memphis filed Chapter 7 for fewer than 9% of their clients from Black neighborhoods while filing them for more than 15% of their clients from white neighborhoods.
In a 2012 study, Lawless and his colleagues asked lawyers nationwide whether they would recommend Chapter 13 or Chapter 7 to either a couple named “Reggie and Latisha” — who attended an African Methodist Episcopal church — or one named “Todd and Allison” — who attended a United Methodist Church. Both fictional couples had the same financial profiles. The lawyers recommended Chapter 13 to “Reggie and Latisha” 47% of the time, while they recommended it to “Todd and Allison” 32% of the time.
When asked their opinions of the couples, the attorneys were more likely to say “Reggie and Latisha” either lacked good values or were less competent.
“Their steering might reflect some sort of unconscious bias about African Americans, who might be presumed irresponsible/untrustworthy — and hence would otherwise try to take the ‘easy way out’ with Chapter 7,” Lawless later wrote.
‘A sledgehammer to drive a nail’
Leaving aside the type of bankruptcy, Shelby County’s overall personal bankruptcy rate is staggeringly high.
Race plays a major role in that as well, according to MLK50’s data analysis. Like in Chapter 13, race was a better predictor of the total number of bankruptcy debtors in U.S. ZIP codes than homeownership, unemployment, labor force participation, or median income. Only college education plays as important a role as race, according to our analysis.
However, neither race nor any of Shelby County’s demographics can fully explain the flood of bankruptcies here. Other equally Black parts of the country have far fewer bankruptcies.
The county’s constant flow of evictions could make a difference, the experts said. It’s easy for landlords here to evict tenants if they’ve missed a single rent payment, which has led to more than 500 eviction filings per week.
And while there are some resources for people facing eviction, they often only provide temporary relief. Tenants here have learned, though, that filing bankruptcy makes it extremely difficult for their landlords to kick them out.
Because of this, Nia said eviction prevention is one of the three most common reasons people file for bankruptcy here, alongside avoiding utility cutoffs and car repossessions. Instead of actually discharging debt, many county residents turn to bankruptcy to simply delay these painful moments, Foohey said.
Unfortunately, the strategy often backfires when tenants have to get their next apartment or car loan.
Most property managers have instituted strict policies against renting to people with ongoing or recent bankruptcies. Of the 10 leasing agents reached by MLK50: Justice Through Journalism, eight said applicants must have had their bankruptcies discharged at least two years before applying.
The prevalence of Chapter 13 filings here also raises the total number. Because the large majority of Chapter 13 bankruptcies here aren’t completed, those same debtors often file for bankruptcy again.
Of the county’s bankruptcies analyzed by MLK50, a little more than 50% were submitted by people who had previously filed. The national average was about 25%.
While bouncing between different hotels and switching jobs so he could drive his wife to her chemotherapy appointments, Scott stopped making his bankruptcy payments four different times. Each time he had to restart the process, it showed up in the court records as a new filing.
Another huge factor, according to Lawless, is the relatively large number of lawyers here who sell bankruptcy services. And that’s not necessarily a bad thing, he said. In many parts of the country, there are too few lawyers to work with everyone who wants to file for bankruptcy.
While he is disturbed by Memphis’ rate of Chapter 13 filings, Lawless said Memphis’ high total number of bankruptcies isn’t necessarily as troubling. By not filing for bankruptcy, many people spend years repaying debts they could have wiped clean via Chapter 7.
Latta agreed that bankruptcy is often a useful tool. But she said she worries about the number of debtors who use it to escape a relatively small rental or utility debt.
Laterrica Powell, who lives in Alcy Ball with her three children, filed for Chapter 13 bankruptcy in 2019 because she owed her apartment complex $1,700.
“I was going to get put out of my apartment,” Powell said. “My cousin explained to me I could put whatever I owed on bankruptcy.”
Like most Memphians, she never completed the process. If she had been able to finish, she likely would have ended up paying her lawyer about $3,800 in fees — more than double her rental debt.
“Bankruptcy is a very expensive and complicated process,” Latta said. “(Sometimes, it) is like (using) a sledgehammer to drive a nail into the wall.”
Jacob Steimer is a corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at Jacob.Steimer@mlk50.com
This story is brought to you by MLK50: Justice Through Journalism, a nonprofit newsroom focused on poverty, power and policy in Memphis. Support independent journalism by making a tax-deductible donation today. MLK50 is also supported by these generous donors.