Lender Discrimination, Black Churches, and Bankruptcy

Abstract

Based on my original empirical research, in this Article, I expose a disparity between the demographics of the roughly 650 religious congregations that have filed for chapter 11 bankruptcy during part of the last decade and congregations nationwide. Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide. Why are Black Churches filing under chapter 11 more so than other churches? Reorganization allows businesses to restructure their debts. However, creditors may consensually agree to debt modifications, obviating the need for the expensive and time-consuming reorganization process. Combining insights from my interviews with 76 bankruptcy attorneys who represented religious organizations and 45 leaders of religious organization debtors, with studies detailing discrimination against blacks in financial transactions, the Article posits one reason: Lenders may have charged Black Churches more for credit and denied Black Churches’ loan modification requests, leading these churches to file chapter 11 to achieve restructurings. In support of this explanation, the Article raises and rejects other reasons as fully explanatory of the disparity: denomination, location, financial resources, and the churches’ internal governance, financial decisions, and views about bankruptcy. It also analyzes legal actions that may provide more evidence of whether Black Churches’ bankruptcy filings stem from lenders’ conduct, and if so, redress for the discriminatory practices. The Article ends by discussing the disparity’s implications for bankruptcy and communities.