In early 2022, Katrina Ferby realized her financial situation was dire.
Things had been going downhill since her partner of 10 years left in December 2019. Her home healthcare job paid less than $1,900 a month. Without a second income, she simply couldn’t keep up with the loan on her 2013 Hyundai Sonata, her utility bill and the combined cost of the mortgage and property taxes on the old North Memphis retail building she’d inherited in 2008.
She owed her car lender more than $13,000 on a car only worth $9,000, and she owed the county almost $7,000 of unpaid taxes.
Ferby knew if she sold the retail building she’d be able to get her finances in order, but she couldn’t bring herself to do it. Her dad had poured some of his final years into running a pizza place there. She could vividly remember one of his friends telling her the importance of holding onto real estate. She’s dreamt of renovating it one day and passing it to her niece and nephew. Plus, she’s been renting it for 11 years to a bike club she loves. If she sold it, she worried the new owner would raise their rent or kick them out.
When the county threatened to claim the building for tax sale, Ferby called a bankruptcy lawyer and filed under Chapter 13.
Chapter 13 bankruptcy, while rare in most parts of the country, is a well-known solution in Memphis’ majority-Black neighborhoods like North Memphis.
Shelby County has been a national leader in bankruptcy for decades. In 2022, the seven U.S. ZIP codes linked to the most debtors on Chapter 13 bankruptcy filings were located here. Within the county, a ZIP code’s number of debtors is more closely linked to its racial makeup than to its economic characteristics, such as its median income, unemployment rate, share of college-educated residents or homeownership rate, according to an MLK50: Justice Through Journalism’s analysis of the 2022 data. In fact, the percentage of Black residents in a ZIP code was — on its own — able to account for almost 90% of the variation in bankruptcy rates between local ZIPs.
If you know the percentage of Black residents in a local neighborhood, it’s extremely easy to predict the share of people there who have recently filed for bankruptcy.
Ferby’s North Memphis ZIP, 38108, has a slightly higher percentage of Black residents than an average Shelby County ZIP and slightly more bankruptcies per person. The four ZIPs with the most bankruptcies in the county are all over 80% Black, and the four with the least are all less than 30% Black.
While race and income are tightly intertwined in Shelby County, it’s far harder to use a ZIP’s income to predict bankruptcies. For instance, ZIP 38125 — located in southeast Shelby County — has one of the county’s higher bankruptcy rates despite having a median household income of more than $74,000. The ZIP is 77% Black.
Mirroring the national trend, the total number of bankruptcies filed in Shelby County has fallen by about 50% in the last five years, thanks to strong economic growth. However, filing rates in its majority-Black neighborhoods continue to float far above national norms — making it harder for residents to rent an apartment, buy a car or secure a mortgage.
Asked to explain why the link between race and bankruptcy is so strong here, Yeshiva University bankruptcy professor Pamela Foohey pointed to historical racism and ongoing discrimination in both the lending and bankruptcy systems.
While trying to stay financially solvent, she pointed out, Black people face a discriminatory credit system, discriminatory lending and low levels of family wealth. And, when they reach the point of needing to file bankruptcy, Black Shelby County residents largely file Chapter 13, the type that is harder to complete and more expensive in the long run — which leaves them often filing multiple times.
During the first decade that Ferby owned the old pizza place, she didn’t think too hard about the mortgage’s balloon payments — a lending practice often considered predatory where the borrower has to pay large sums of money at the end of the loan. She didn’t think too hard about the fact that it included balloon payments — a lending practice often considered predatory where the borrower has to pay large sums of money at the end of the loan. When the first one was due in 2011, she knew she couldn’t pay the $42,000 and agreed to extend the loan another few years. When it came due again, she still didn’t have the money, nor the third time.
It wasn’t until 2018 that she researched balloon payments and thought about the fact that the bank had made such a loan to her father, who always had excellent credit. Furious, she wrote a letter to the bank, demanding they remove the balloon from the loan. She was shocked and grateful when they complied and didn’t attempt to defend themselves. Still, she said, the practice had already cost her at least $13,000.
The loan’s burden would’ve been much more bearable if the building’s value hadn’t been declining. After decades of disinvestment in North Memphis, it’s now worth about $33,000, according to the Shelby County Assessor of Property website. And while her father also passed down a home that had been paid off, it’s only worth about $23,000, according to the Assessor site.
Inheriting a home and a retail building would’ve been quite a boon if they’d been located in white parts of Memphis, but Ferby wasn’t so lucky. While property ownership has been a huge wealth builder for white Americans, Black Americans have rarely seen similar benefits.
Owning any property does make Ferby wealthier than most local bankruptcy filers. Last year, the median Chapter 13 filer here owned about $13,000 worth of assets — suggesting most owned a car but not a home.
Nationwide, the median Chapter 13 filer owned about $57,000. This massive difference, Foohey said, shows how Shelby County residents are using bankruptcy differently than most Americans.
In most of the country, she said, Chapter 13 is the “keep your home chapter.” Middle-class Americans frequently use it to hold onto a home after a divorce or job loss has wrecked their finances.
In Shelby County, Chapter 13 is most often used to stop a landlord from evicting, a car loan provider from repossessing or Memphis Light, Gas and Water Division from cutting off the lights. One benefit of the chapter is its ability to provide near-immediate protection against these events.
“It’s not to keep stuff. It’s to stop something,” Foohey said. “It’s (used) to solve problems in their life that bankruptcy is not necessarily designed to solve.”
Jennie Latta, one of the judges for the U.S. Bankruptcy Court for the Western District of Tennessee, agreed with that analysis. Most Chapter 13 filers, she said, use it as a substitute for social safety net programs when they’re down on hard times.
“(If you are about to be evicted), you’re going to do whatever it takes to get beyond that crisis,” Latta said.
Laterrica Powell remembers that feeling.
Not wanting to take her kids to a shelter but not knowing what to do, she called her cousin, who suggested bankruptcy.
“I was just doing it for the moment, to not get kicked out of my apartment,” she said.
She’s glad she filed. She was able to keep the apartment long enough to find her next place.
That apartment was located in ZIP 38114, which is 94% Black and had 10.6 bankruptcies per thousand residents last year — the second highest rate for any U.S. ZIP with at least 10,000 residents.
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
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