The Internal Revenue Service audited nearly 1.1 million tax returns last year, but that represented just 0.5 percent of all returns. That means the chances of getting audited are fairly low.
But if you are audited, there’s a good chance it’s because you claimed the earned income tax credit. That’s a credit the federal government offers to people who work, have kids to take care of and don’t earn much money. Most households who claim it earn between $10,000 and $40,000 a year. The average credit is for $2,400, but it can go above $6,000 for larger families.
The IRS audits a lot of people who claim this credit. When that happens, the IRS blocks the refund. Some people may actually end up owing tax instead of getting a refund.
Here is an actual audit notice sent to a taxpayer last year, which was provided to us by the taxpayer’s legal aid attorney. We’ve annotated it to provide important context and added links to helpful resources for those facing an IRS audit.
If you claim the credit and are audited, there’s an excellent chance it will be done entirely through the mail. Of the 1 million-plus audits the IRS conducted last year, less than three-quarters were done by mail, with the remainder by examiners in the field. But for those who claimed the earned income tax credit, nearly all — 92 percent — were done by mail.
In the example here, the audit is ongoing, meaning the IRS hasn't yet made a final determination and won’t release the refund until the audit is closed. And the forms don’t make clear why this taxpayer, or any other, is selected for an audit. But for those claiming the EITC, the main issue is typically whether they have what's called a “qualifying child.” In other words, if you are audited, it’s usually because the IRS doubts that the child or children you claimed on your tax return actually live with you or are related to you (biologically or through adoption or marriage).
Whether a child qualifies can be confusing. This IRS FAQ can be helpful.
No single IRS employee is in charge of an EITC audit. Instead, taxpayers are told to call a service center to speak with a tax examiner. If you call, you may speak with a different person every time.
This taxpayer claimed the EITC and had been expecting a refund of several thousand dollars. Instead, because the IRS believes she doesn’t qualify for the credit, she is being told that she owes $599.53. Almost all of that amount is tax, not interest or penalties.
Since this is an open audit, she doesn’t owe the money quite yet. The tax is legally owed after she receives a notice of deficiency, which would be a separate letter. This taxpayer eventually was able to reverse the IRS’ audit finding through the help of a lawyer with the Low-Income Tax Clinic program and the Taxpayer Advocate Service.
Taxpayers are responsible for notifying the IRS of their current address. So if this notice goes to an old address and isn’t forwarded, the taxpayer may lose the ability to respond to the audit notice. That doesn’t mean there’s no way to undo an IRS audit after it’s done, but it’s a lot harder.
Taxpayers can respond to audits on their own. However, your chances are much better with help. If you qualify for the EITC, then you will likely qualify for free legal help. Here is a directory of Low-Income Taxpayer Clinic locations. If, when the audit is finished, the IRS still does not agree that you qualify for the credit, the next step is usually to file a petition with the U.S. Tax Court.
To qualify for assistance from a low-income clinic, your household cannot make more than 250 percent of the federal poverty level. For example, a family of four living in the contiguous U.S., Washington, D.C., or Puerto Rico has to earn less than $62,750 per year in order to qualify. And the amount in dispute generally must be less than $50,000.
Once you receive the final notice of deficiency from the IRS, you legally owe the tax. Your best option then is to file a petition in Tax Court. If you don’t file within 90 days of receiving the notice of deficiency, you lose your chance to go to Tax Court. If you don't file a petition in Tax Court, the IRS may start to try to collect the tax you owe. You may still have a chance of undoing the audit finding through an audit reconsideration process, but that can take a very long time and your chances of success are lower.
This letter was signed by an IRS manager in Austin, Texas. These audits are generally computer-driven with minimal human interaction. However, if you respond to an audit, it will be reviewed by a human being. But that’s also why the IRS can take as long as six months to review documentation that you submitted.
Republished with permission undder license from ProPublica a Pulitzer Prize-winning investigative newsroom.
The HUD secretary came to town last year and declared residents were no longer at risk, three decades after the federal government took over public housing here. In fact, the complexes are falling apart and a woman was killed in the weeks before his visit.
By Molly Parker, The Southern Illinosian
EAST ST. LOUIS, Ill. — The city’s administrative building was decorated for a festive affair when U.S. Housing and Urban Development Secretary Ben Carson arrived here last September. An Americana themed banner draped the back of a raised stage. Red, white and blue balloons floated in the foreground.
“This is really an exciting day,” Carson told a crowd of a few dozen city and community leaders. “It is a day of transition and a day of progress.”
In October 1985, HUD officials arrived here unannounced and seized control of the East St. Louis Housing Authority, citing poor living conditions and fraud. Carson was in town to return it to local control.
In a brief speech, Carson said that when former President Ronald Reagan’s HUD took over the housing authority five presidential administrations ago, “the residents were at risk, and the future of our children was at risk.”
Inspectors reported such problems as windows and doors that didn’t lock, infestation, mold and mildew, fire safety violations, holes in walls, broken appliances, peeling paint and missing lead-based paint inspection reports. Among the properties that failed, HUD inspectors estimated an astounding 5,405 violations. One-quarter were deemed life threatening.
In at least one case, persistent security problems may have played a role in a tenant’s death.
Around 4 a.m. on Aug. 8, 2017, Winston made a frantic call to 911, told dispatchers someone was trying to break in, screamed and hung up the phone. When police arrived at the John Robinson Homes, they found her first-floor kitchen window shattered and Winston dead upstairs, her body on the right side of her bed. Her toddler was in a nearby playpen.
In the months preceding her death, Winston made repeated requests to the housing authority, then still under HUD’s control, to fix the window, according to family and friends. It didn’t lock and was missing a security screen, commonly seen on other windows throughout the apartment complex. Winston’s complex failed its HUD inspection last year.
Carson did not tour any public housing complexes in East St. Louis when he visited last September, HUD spokesman Jereon Brown said in a written response to questions. At the time, Carson also was not aware of Winston’s death, Brown wrote. Asked if Carson stood by his remarks, the spokesman declined to comment.
“The path forward for public housing is not a dilemma that is limited to East St. Louis,” Brown said in an email.
The neglect of public housing in big cities like New York, Chicago and Washington, D.C. has been widely documented. But the crisis is also hitting small towns and mid-sized cities — places like Peoria, Illinois; Gary, Indiana; Birmingham, Alabama; Hoboken, New Jersey; Buffalo, New York; and Highland Park, Michigan, HUD property inspections show.
And now, after years of congressional funding cuts to public housing programs, the Trump administration has proposed slashing far more. HUD funding for major repairs at public housing complexes, for instance, has fallen 35 percent — from about $4.2 billion in fiscal 2000 to $2.7 billion in 2018, according to the Center on Budget and Policy Priorities, a liberal-leaning think tank. Earlier this year, the White House proposed completely eliminating this funding.
St. Clair County State’s Attorney Brendan Kelly said a homicide investigation into Winston’s death remains open.
Kelly, who is also the Democratic nominee for a U.S. House district that includes East St. Louis, has been critical of HUD. After reviewing inspection reports for the properties given to him by The Southern Illinoisan, Kelly said they should have prompted the housing authority to further assess and fix security concerns in all units, and flagged HUD to make sure it was done.
Roughly one in every four of the 27,000 East St. Louis residents live in public housing.
“HUD failed Alexis and so many others there that simply want to live in peace and safety,” he said. “How can anyone put their lives together and lift themselves out of the circumstances that lead them to public housing if you are fighting for your own safety every day?”
A century ago, the city of East St. Louis was a powder keg. During the World War I industrial boom, African Americans flooded the city, looking for jobs. Shut out of work in the South, some were willing to cross picket lines, angering many white workers.
In the summer of 1917, a white person drove into a black neighborhood and sprayed homes with gunfire. Other black people reported being pulled from their cars by whites and beaten that night. Black citizens returned fire, unintentionally striking two police officers in a parked car who had arrived to investigate the shootings. Over the course of three days in July, dozens of black people were beaten and lynched, one of the most savage race-based attacks in the 20th century. Whites set fire to their homes and shot at them when they ran.
Some black residents fled town and never came back, but far more moved in.
In the 1930s, between the world wars, discussions began about building two public housing developments in East St. Louis — one each for black and white residents. After years of political infighting, protests and attempts to scrap plans for African-American housing altogether, more than 400 families moved into the Samuel Gompers Homes and John Robinson Homes in 1943.
East St. Louis’ population peaked at more than 82,000 in the 1950s — and several additional large public housing complexes were built.
But since then, the city has been in a freefall. Between roughly 1960 and 1990, the city lost more than 13,000 jobs. The white middle class had already moved. During this time period, much of the black middle class packed up and left, too.
In 1990, about five years after HUD took over the housing authority, then-Illinois Gov. James Thompson agreed to spend $34 million to pull the city from the brink of bankruptcy. But that couldn’t prevent East St. Louis from turning over the deed to its four-year-old City Hall that same year after losing a lawsuit filed by a man who was beaten by another inmate while in jail on a traffic violation.
“Many American cities such as Los Angeles, Baltimore and Detroit have neighborhoods where need is urgent, but they differ from East St. Louis in one important respect,” East St. Louis noted in a 1995 report to HUD, discussing its housing needs. “They can shift resources from more affluent neighborhoods into poorer ones, whereas East St. Louis has such pervasive poverty and a woefully inadequate tax base that shifting is exceedingly difficult.”
“As an East St. Louis native, it pains me to see my old home town in such extreme distress,” said Sen. Dick Durbin, D-Ill., who was raised in East St. Louis. Residents here “suffer from one of the highest violent crime and homicide rates in the country” and “deserve better,” he said.
Durbin, a member of the Senate Appropriations Committee, said he’s helped East St. Louis secure half a million dollars to install a new security and lighting system at two large public housing complexes. Durbin also supported efforts by Mayor Emeka Jackson-Hicks to end the receivership. In an interview last year, the senator said the federal takeover had long been a “sticking point” for city leadership because they wanted the opportunity to manage the housing authority on behalf of their residents. Durbin said he has confidence in Jackson-Hicks, who was elected in 2015, that he didn’t have in previous leaders.
“But it is clear that more work remains to keep the families living within ESLHA [housing authority] safe,” he said.
Neither Winston nor any immediate family members had ever lived in East St. Louis Housing Authority apartments, but she added her name to the waiting list in the winter of 2017.
At the time, Winston and her baby were staying with Winston’s mom, Florince Harlan, in Belleville, Illinois, a short distance away. When Royal turned 1, Winston had started working as a clerk at Circle K in St. Louis and she was eager to establish her independence.
The first apartment she was offered was in the John Robinson Homes. Harlan said she was concerned about it by reputation. “I didn’t want her to go there,” she said.
The John Robinson Homes was named for an ex-slave, a Civil War captain and turn-of-the-century civil rights leader. The complex sits downtown, in the shadow of the Gateway Arch on the Illinois side of the Mississippi River. The signs of neglect are clear: holes in the soffit lining of the roof exposing ragged yellow insulation, a boarded-up community center with holes in the windows that appear to have been caused by bullets. Inside the units, there are mice, roaches, holes in walls, leaky ceilings and missing appliances.
After moving in, Winston reconnected with Devanie Moran, a close friend from grade school who lived in another public housing complex, John DeShields Homes, a half-mile away. They had children about the same age; the moms worried together about keeping their kids safe.
Moran showed Winston where the management office of the apartment complex was located, and how to file a work order. Moran knew the drill, having moved in several years before Winston. At one point, Moran’s living room ceiling leaked so badly “it was basically raining inside.”
Farlon Wilson lives on the opposite end of the complex from Winston. Leaking pipes caused a hole in Wilson’s living room ceiling that the housing authority patched over, and she continues to battle a mold problem with bleach, which she believes is making her children sick. Her bathroom sink fell off the wall. She would have preferred to live elsewhere but this was the apartment offered to her and she took it.
Winston’s mom and sister said that Winston wasn’t thrilled about moving into the John Robinson Homes, either. But she was determined to keep an upbeat attitude, her mom said.
“We accepted this because you have to accept something low in order to get to something big,” Harlan said.
When HUD officials took over the housing authority in 1985, they told reporters that they would improve living conditions and the housing authority’s finances. Over three decades, the housing authority’s financial condition improved from a $14 million deficit to a surplus. A few longtime residents said living conditions had also improved in the earlier years of HUD’s takeover, but then declined again.
Longtime tenants such as Delbra Myles have complained that the housing authority hasn’t painted occupied units for 20 years. This isn’t just a cosmetic problem. The paint chipping from window sills and bathtubs may contain toxic levels of lead, according to a lead paint assessment that was conducted in April for the Samuel Gompers Homes, which was built for whites but is now occupied almost exclusively by black families. That report was obtained by The Southern Illinoisan through a public-records request.
HUD inspectors have cited Gompers for missing lead-based paint inspection reports for years. From 1995 to 2016, while HUD was the receiver, state health department test records show at least 70 cases of children with dangerously elevated lead levels. Lead poisoning can cause lifelong developmental delays and health problems in affected children. The cause of the children’s high lead levels has not yet been established.
Mildred Motley, the East St. Louis Housing Authority’s executive director, said her agency is examining “the exact impact of the alleged lead levels” and has applied for a grant from HUD to assist with removing or sealing lead paint, if necessary. Brown, the HUD spokesman, declined comment on the missing lead paint assessments during HUD’s receivership.
The troubles go beyond lead paint. In audits of the East St. Louis Housing Authority in 2011 and 2012, HUD found that the housing authority double-billed the federal government for certain salaries and unit renovations, and mismanaged stimulus funds during the recession of the late 2000s.
In 2012, HUD’s Office of Inspector General found that the department’s failures to give East St. Louis the consistent leadership and detailed attention it needed had prolonged its receivership and led to “significant management and operational” shortcomings.
The report concluded that HUD “needs to improve its structure for managing receiverships.” Since taking over East St. Louis, HUD has placed about 20 more housing authorities into administrative receivership. Three remain under HUD’s control, all of them in small majority African-American cities in the Midwest: Gary, Indiana; Wellston, Missouri; and Alexander County, Illinois, home of Cairo, the southernmost town in the state.
The day of Winston’s death, Carson was in Cairo, about two hours from East St. Louis, speaking with tenants of two 1940s era housing complexes that HUD plans to demolish because they are no longer safe. The decision to shut down the Cairo complexes after years of neglect and HUD oversight failures was one of Carson’s first major decisions as secretary.
Five days after Carson visited East St. Louis and declared the housing authority in excellent shape, HUD’s inspector general released yet another damning report about the city’s housing agency. This one accused a private management company, working on the housing authority’s behalf, of improperly paying workers and awarding contracts to companies owned by employees or their spouses instead of honestly evaluating bids. In a response contained within the report, the company noted that its president initially contacted HUD when “made aware of an employee conducting fraudulent activities,” but disagreed with the amount of money the inspector general claimed was overpaid to workers. The housing authority has ended its relationship with the company.
It didn’t take long after Winston moved in for issues to arise, Winston’s family and friends said. For starters, the mice and roaches were everywhere, her mom said. Harlan said she bought her daughter a bug bomb, and they set it off in her apartment. But what bothered Winston the most was the lack of security.
Winston tried repeatedly to get her kitchen window fixed.
Moran, Winston’s friend from grade school, recalls going to the management office more than once to help Winston file work orders. When she visited the office a final time, an employee said, “Be patient because they barely have maintenance men,” Moran said.
When that came to nothing, Harlan said she accompanied the petite 4’ 9” Winston — her family called her “Precious” — to the housing authority’s headquarters a couple of miles away.
A few weeks before her death, one of Winston’s sisters, Laquitsha Bejoile-Hayes, helped her lock the window with a broom handle and two nails. But a permanent repair was never made, and the security screen never arrived.
The inspection report noted that nearly half of inspected windows were inoperable or wouldn’t lock. More than a third had damaged or missing screens. This was out of a total of 25 units inspected between the John Robinson Homes and neighboring John DeShields Homes (the two sites are inspected together as one project).
Nationwide, the failure rate for public housing projects nearly tripled, to over 13 percent from about 4.5 percent, between 2015 and 2017. African Americans were disproportionately more likely to live in unsafe conditions, an analysis by The Southern Illinoisan and ProPublica of HUD inspection scores found. While apartment complexes are expected to pass routine inspections and fix problems in exchange for federal dollars, HUD rarely orders that they be closed and residents moved if that doesn’t happen.
During the past five years, at least 120,000 people, nearly half of them children, lived in public housing apartments that received repeated failing scores, the analysis found.
Earlier this year, Bejoile-Hayes asked Motley, who took over as executive director of the East St. Louis Housing Authority in late 2015, for copies of work order requests Winston had filed. Motley declined to provide them. Subsequently, The Southern Illinoisan submitted a public-records request for work orders from April to August 2017 for the development where Winston lived.
Among the roughly 130 requests for repairs, five were for window repairs. (Tenant names and unit numbers were not included for privacy reasons.) Of those five requests, the records show that an order to fix one broken window was closed on the day it was reported in late April. The others were not closed until at least mid-September, after Winston’s death, the records show.
Motley would not comment on any requests made by individual tenants, including Winston, to repair their units. She said in an emailed statement to The Southern Illinoisan that “window and screen replacements are major improvements which require capital funds.”
Scared to be in her apartment at night alone, Winston spent most nights at her mom’s home. But on Aug. 7, Winston decided to stay overnight at the John Robinson Homes. She had a hearing scheduled for that week at the nearby county courthouse to get child support for her daughter.
A few hours after Winston was killed, a police officer knocked on the door of her sister’s home in Belleville. Tynesha Bejoile was at work, so her fiancé answered. The officer asked him to have Bejoile call the police department as soon as she could.
When Bejoile called the police, she was told that there had been a tragedy in Winston’s apartment. The officer asked her if any immediate relatives could arrange to pick up Royal, who had been taken into the custody of the Illinois Department of Children and Family Services at the scene. “I asked if my sister was OK, and she said, ‘I can’t tell you that over the phone,” Bejoile recalled.
Bejoile-Hayes, another sister, left work and drove to their mom’s house. Florince Harlan, who was asleep, woke up to numerous missed calls, then got another from her ex-husband. A co-worker had told him that rumors were spreading on social media that Winston had been murdered in her apartment.
Bejoile-Hayes drove Harlan and Winston’s stepfather to the John Robinson Homes.
Around 8:30 a.m., they arrived at a scene filled with signs of tragedy: multiple squad cars in the parking lot, crime scene tape stretched across the apartment complex, and two armed officers guarding the front door of Winston’s apartment. Harlan collapsed in pain. Her ex-husband steadied her by the arm.
“That’s when I started screaming,” she said.
Eventually, she went to find Royal at a state office just a short drive away. An officer met Harlan there, and walked her over to the police station, where they confirmed that her daughter had been killed.
Winston’s mom and sisters spent the next 10 days planning burial services. In the days following her daughter’s death, Harlan said she kept thinking about the fact that her daughter had complained repeatedly about her unsecured apartment.
If the screen had been in place, “I think it would have saved her life,” she said.
Winston wasn’t the only East St. Louis Housing Authority tenant to die in the weeks before Carson’s visit. Last July 26, a fire broke out in an eight-story apartment complex for seniors known as the Orr-Weathers E-2 building, located about a mile from where Winston lived.
Derwin Jackson, a tenant in the building, said the alarm sounded loudly on the first floor, but was difficult for some tenants on higher floors to hear. “I’m on the sixth floor. I couldn’t hear it,” he said.
“I believe it’s going to take another life for them to even consider getting this building up to code like they are supposed to,” said Jackson, who was Jefferson’s cousin as well as his neighbor. HUD inspected the property a week before Jefferson died. Like Winston’s complex, it failed, scoring a 37 out of 100 points.
Willie McDaniel, who also lives in the building, said tenants have long complained about the building’s lack of security. People who are not authorized to be in the building sleep in the hallways at night, he said. McDaniel said that it’s not uncommon for feces and urine to linger in common areas for several days.
At a meeting last December, tenants asked for the housing authority to assign one of its security workers to patrol the hallways of this high-rise and others. The housing authority responded that security personnel visit the high-rises several times per day and monitor security cameras from their vehicles. But the housing authority “does not have sufficient resources to have Public Safety stationed at each high rise building,” according to responses included in the housing authority’s annual plan.
Terrell Wren, another resident in the Orr-Weathers high-rise, had a list of complaints, particularly about bedbugs. His bathroom is in shambles. In late April, a jammed hot water knob caused the water to run continuously. “It’s been like this going on three, maybe four months,” he said.
McDaniel said he’s so fed up that he organized a petition drive to Illinois Attorney General Lisa Madigan, asking her office to intervene. A half dozen tenants wrote to Madigan about bugs, frequent hot water outages, and security concerns they say they’ve raised for years. “Help!!!” one tenant wrote.
“They need to condemn this building,” McDaniel said.
Annie Thompson, a spokeswoman for Madigan, said the attorney general’s Consumer Fraud Bureau reviewed the complaints and determined that it does not have jurisdiction in the matter. The complaints will be forwarded to the East St. Louis Housing Authority and copied to HUD, Thompson said.
Lakena Harmon remembers hearing that Winston’s had been killed last August. It was all anyone talked about for several days. “I thought of, what if this happens to me, could this happen to me, and will these windows be able to protect me?”
Although Harmon didn’t know Winston, she thought of her when her own apartment was sprayed with gunfire this spring.
In mid-April, Harmon returned to the Samuel Gompers Homes from a get-together in Belleville. Friends and family had thrown her a gender reveal party. Excited to learn she was having a boy but worn out from the festivities, Harmon said she laid down on her bed at about 10 p.m.
Soon after, she heard what she thought was a rock hitting her window.
When she heard it again, Harmon realized it was gunfire and rolled off her bed, hitting the floor with her pregnant belly. The window shattered, leaving a bullet hole in her bedroom closet door. She was unharmed, but for weeks her window was covered with a plywood board.
As she waited for the window to be replaced, Harmon slept on a mattress in her living room. Then, about two weeks after her window was shot out, she awoke to the smell of raw sewage. “As soon as I put my feet on the floor, it’s all water, all water,” she said. She shuffled across her wet floor to the bathroom and threw up. Then, she started mopping up the mess.
Neighbors have had similar experiences. After the incident, Harmon’s doctor wrote a note for her to give to the housing authority saying she needed to be moved or have her apartment repaired as “exposure to raw sewage creates a health hazard for the patient.” The housing authority hasn’t responded, though, and Harmon said her apartment flooded again on July 31.
Since HUD ended its receivership, living conditions have remained bleak.
A recent assessment showed a staggering backlog of needed repairs at East St. Louis’ public housing complexes. The report said that it would cost $42 million to immediately renovate units and building systems to HUD standards and another $180 million over 20 years.
To put that in context, the housing authority only receives about $3 million each year from HUD for major repairs. It also receives about $9 million in federal operating subsidies, intended to cover the difference between the reduced rents charged to tenants and the estimated cost of managing the apartment complexes. Roughly three of every four dollars the housing authority receives comes from the federal government.
Kelly, the prosecutor who is running for Congress, has been critical of HUD’s lack of investment to improve the East St. Louis housing complexes. He said last September that he was concerned the agency had sought to distance itself from ongoing problems by returning control of the housing authority to local officials without giving them enough resources to fix its problems.
“The aging housing stock continues to deteriorate. The prior repairs have been plagued with inferior workmanship and materials and unskilled maintenance staff. The lack of maintenance staff has also taken a toll on timely repairs,” the local housing authority wrote in a brief report on the issue. In recent years, major systems such as plumbing, electrical, roofing and heating, have not been properly maintained, the report said.
Based on the projected annual funding from HUD for major system repairs, “it will take over a 70-year period to correct the deficiencies” identified by inspectors and in a separate assessment of property conditions.
Brown, the HUD spokesman, called Motley, the local housing authority executive director, “a glimmer of hope for housing in East St. Louis.”
“As committed as she is, she cannot do it alone,” Brown wrote. “There is a direct, indisputable correlation between housing and the local economy.”
The local housing authority “strives to meet HUD standards,” Motley said in an email. “Inspections have identified several items that need to be addressed, and we are in the process of addressing those items.”
Under the transition plan back to local control, the housing authority also was asked to improve security on its properties and track monthly crime statistics.
In April, police received three reports of home invasions and two of shots fired at the John Robinson and John DeShields apartment complexes, which combined house about 300 families. In May, police responded to an aggravated assault and two incidents each of aggravated battery and criminal damage to property. In June, police responded to a criminal sexual assault. At the John Robinson Homes, some windows are still missing security screens, and are sealed with boards and nails.
Winston’s daughter, Royal, is now living with Bejoile-Hayes, her husband and their children.
Bejoile-Hayes said it pains her to think of all the moments her sister is missing, like when her little girl turned 2 this January. Royal was in her pretty white dress, squealing with delight at her brightly colored Trolls-themed birthday party and a few of her favorite foods: a pancake bar with whipped topping, fresh strawberries and chocolate chips.
Late last month, Harlan sued the East St. Louis Housing Authority in St. Clair County Circuit Court, alleging that its failure to secure the window after Winston’s multiple requests contributed to her death. Any money collected will go into a trust fund for Royal’s continued care, Harlan said. She’s also hoping it sends a strong message to the housing authority and HUD about the importance of fulfilling work orders so that “nobody else’s child has to die in those apartments down there.”
The housing authority and HUD, which is not a defendant in the suit, both declined to comment on pending litigation. The housing authority has yet to file a response in court.
“You knew my child needed help,” Harlan said, “and you turned a blind eye.”
Republished with permission under license from ProPublica.
There’s ample evidence many people don’t file for bankruptcy simply because they can’t pay an attorney. It’s a fixable problem.
by Paul Kiel
A ritual of spring in America is just ended. Tens of thousands of people got their tax refunds, and when they did, they were finally be able to afford the thing they’ve thought about for months, if not years: bankruptcy.
It happens every tax season. With many more people suddenly able to pay a lawyer, the number of bankruptcy filings jumps way up in March, stays high in April, then declines.
For the past year, I’ve traveled the country trying to understand why bankruptcy often fails those it’s supposed to help. I analyzed millions of filings and interviewed dozens of judges, lawyers and people struggling with debt. The answer turns out to be simple: People are too broke to go bankrupt. Filing costs money, as does hiring an attorney, which is the best way to make sure you actually get debt relief.
“It’s kind of a worthless solution if you can’t pay because you don’t have money,” said one man who lives in a trailer park in a small town outside Indianapolis. “It’s a sad realization that the legal system isn’t there for us.”
Scores of people considering bankruptcy told me the same thing again and again: If they had $1,000 to pay an attorney, then they probably wouldn’t need to file in the first place. “It’s funny how you buy bankruptcy,” marveled Trina Wright of Memphis.
People who hire lawyers to help them file under Chapter 7 have their debts wiped away almost without fail, national filing data shows. And debtors with attorneys fare far better than those who go it alone, filing pro se. Studies show clear benefits for those who successfully wipe out their debts, from higher credit scores to higher incomes. Moreover, this sort of targeted relief can help buoy the broader economy.
Those who can’t afford attorneys often turn to bad options with predictably bad outcomes. Some try to wrangle the complicated bankruptcy forms on their own, risking costly mistakes. Others are lured by unregulated “petition preparers” who promise bankruptcy on the cheap. In Los Angeles, I found a whole industry of petition preparers who often flout bankruptcy laws because of a lack of enforcement.
“If we had adequate access to our legal system,” a judge there told me, vulnerable people with debt “would not be this wonderful ripe field for picking by the fraud artists.”
In the South, debtors often avoid the up-front costs by filing bankruptcy under Chapter 13. Unlike Chapter 7, which clears debts after a few months, Chapter 13 is a payment plan that usually lasts five years. Lawyers in the South will often start a Chapter 13 for $0 down, allowing their much larger fees (usually $3,000 to $4,000) to be paid through the plan. This provides immediate protection to low-income debtors, but most are unable to keep up with the payments. Once their cases are dismissed, their debts return.
Over the past decade, the number of consumer bankruptcies filed each year has ranged from about 800,000 to 1.5 million. That’s a small share of the millions of financially struggling households, and researchers have long argued that many more people would benefit from filing. And while the reasons someone may or may not file for bankruptcy can be complex, it’s clear that an important ingredient is affordability.
So if attorney fees can determine whether, and how, someone declares bankruptcy, can anything be done about them? The good news, I found, is that the answer is yes. The bad news is that none of the fixes are easy.
A 2005 bankruptcy bill made the problem worse. In the name of preventing people from cheating their lenders, the bill heaped new requirements on debtors and their lawyers. The scope of such abuses was questionable, but the burdens of the new requirements drove up attorney fees nationwide by about 50 percent. The average attorney fee for a Chapter 7 today tops $1,100, with court fees adding $335 more. The result? Fewer filings, especially by low-income people.
The cleanest solution would be to change the law to allow more flexibility in how debtors pay their lawyers for Chapter 7 cases.
Crafting “a mechanism where people could pay their attorney fees over time would make Chapter 7 more accessible,” said Judge Elizabeth Perris, who retired in 2015 after serving as a bankruptcy judge in Oregon for over 30 years. Perris co-chairs The American Bankruptcy Institute Commission on Consumer Bankruptcy, a panel of experts working on potential improvements to the system to be released later this year.
Perris said the panel will likely make a specific proposal about attorney fees, but whether Congress will take action is less certain. “We’re not naïve,” said Perris. “We understand it might be difficult to get legislative changes through.”
The idea has at least one influential backer in Congress. When I asked Sen. Elizabeth Warren, D-Mass., a bankruptcy scholar herself, about it, she responded, “There’s a lot for a family to consider when making the painful decision of whether, when, and how to file for bankruptcy. Whether they can pay their lawyer in installments should not be one of them.”
In the interim, there are some lawyers who try workarounds: One of the oldest is for clients to hand over a stack of postdated checks before filing. After the case is filed, these checks are deposited over several months, resulting in a jerry-rigged installment plan. Most judges have decided that arrangement violates the law, but not all.
In a 2015 opinion approving the use of postdated checks, Chief Judge C. Ray Mullins of the U.S. Bankruptcy Court for the Northern District of Georgia wrote, “To deprive struggling debtors of willing counsel in such a time of need is markedly opposite of the intentions of the Bankruptcy Code.”
In the Southern District of Alabama, the chief bankruptcy judge, Henry Callaway, is working on a different fix. Troubled by the fact that more than 70 percent of bankruptcies in the district are under Chapter 13, he’s drafting a rule that would allow lawyers to break their fees into two parts for a Chapter 7 filing instead. The first would cover services rendered before the bankruptcy petition is filed; the second, services afterward. Because the second agreement is signed after the petition, it has a different legal status and isn’t wiped out like other debts. Unlike in a Chapter 13 case, where debt relief is conditioned on completing a payment plan, this would give clients relief and then allow payments to lawyers over time.
With a rule, he hopes, local attorneys will be more willing to try something different. “Lawyers are not going to do something unless they’re sure they’re not going to get in trouble for it,” he said.
It is, to be sure, a convoluted arrangement. But some judges consider it legal, including a federal appellate court and bankruptcy judges in Florida and Michigan. Its growing popularity has already spawned a cottage industry to facilitate payments.
BK Billing launched in 2016 to manage the two-part agreements for lawyers, usually with clients paying $0 up front. The company helps attorneys craft what they say are legally defensible client agreements and processes the payments.
So far, the company has worked with a “few hundred” attorneys in more than 40 states, said David Stidham, the CEO. But because few judges have decided whether such arrangements are legal, there is wide uncertainty about the BK Billing model. “It’s so wild west right now,” he said.
Sean Mawhinney, the company’s president, said he used the two-part Chapter 7 arrangement when he practiced as a bankruptcy attorney in Utah, where BK Billing is based. Offering Chapter 7 for $0 down made a huge difference for clients, he said, especially those who were having their wages garnished.
“If they can stop the bleeding and get their case filed quickly, then they can make a reasonable payment to the attorney,” he said.
But, of course, BK Billing is a business, and its services come with a cost that can cause problems of its own. To reduce the risk of clients defaulting, BK Billing pays attorneys up front and charges a 25 percent fee. So, if an attorney normally charges $1,000, BK Billing will pay the attorney $750 and then collect $1,000 from the debtor over the following year.
To account for the fee, attorneys are then tempted to charge more. But Stidham said attorneys must be “willing to take a discount.” Attorneys told me, however, that it was hard to resist boosting their fee.
Late last year, the U.S. Trustee for the Central District of California filed a complaint against a local firm for, among other alleged violations, doubling its fees after moving to BK Billing’s model. The U.S. Trustee, the arm of the Justice Department that oversees the bankruptcy system, called the fees unconscionable and is seeking fines against the firm, which argues that its fees are reasonable for the extra services it provides.
Compared with these complicated maneuvers, another solution to the problem of attorney fees seems blessedly simple: Make legal help with bankruptcies free. But civil legal aid organizations, which are the main source of this kind of assistance, are also financially strapped.
“We don’t have enough resources to provide bankruptcy services in all of our counties,” said Steven McGarrity, executive director of Community Legal Aid, which serves clients in central northeast Ohio.
This year, his group, along with legal-services organizations in 11 other states, will begin using a new tool called Upsolve to help more poor debtors file. Developed by a nonprofit in New York, Upsolve is a kind of TurboTax for bankruptcy, walking debtors through the process of gathering the necessary documentation and asking questions in plain language. The software populates the small stack of forms necessary to file, and then a lawyer reviews them. Cases are filed pro se, but if complications arise, the debtor can get help from the lawyer.
“It was a way for us to expand the volume of people we can help without a lot of resources on our end,” said McGarrity.
Perhaps in the future, free help will be available to all who need it. Or maybe Congress will rewrite the law to allow debtors to pay attorneys over time. In the meantime, people struggling with debt will keep on doing what they’ve always done: waiting and hoping for relief.
Re-published with permission under license from ProPublica
The suburbanization of poverty is one of the most important demographic trends of the last 50 years. Poverty rates across the suburban landscape have increased by 50 percent since 1990. The number of suburban residents living in high poverty areas has almost tripled in that time.
These new trends are not just occurring in the wake of the Great Recession. In 1990, there were nearly as many poor people in the suburbs of the largest 100 U.S. metropolitan areas as within the cities of those metros, even though poverty rates historically have been much higher in cities.
Why is poverty rising faster in suburbs than in cities? There are many reasons. Population growth in suburbs plays a part – the U.S. has become a suburban nation. However, that’s not the most important factor. My research finds that suburban poverty is growing three times faster than population size in suburban communities across the country.
As in cities and rural communities, poverty is rising in suburbs because of the changing nature of the labor market. For those in low-skill jobs, earnings have stayed flat for the last 40 years. In most suburbs, unemployment rates were twice as high in 2014 as in 1990. Good-paying jobs that don’t require advanced training have started to disappear in suburbs, just as they did in central cities more than a quarter century ago.
These national employment trends have contributed to rising poverty everywhere, but the impact has been particularly acute in suburbs, where there are a large percentage of workers without advanced education or vocational training.
Rising suburban poverty has surprising implications for the safety net. Many suburbs lack the resources needed to respond to growing poverty. For example, I’ve found the typical urban county spends nearly 10 times as much on human service programs per low-income person as the typical suburban county.
What can be done? I have a few suggestions.
First, the U.S. must maintain federal funding of safety net programs like food stamps, which are effective at reducing poverty. Increasing public funding of human service programs also will help to support those weathering a spell of unemployment or seeking to advance in the labor market. Communities must find ways to cultivate a new generation of local leaders and nonprofit organizations capable of tackling suburban poverty challenges.
Finally, poverty problems continue to rise, albeit at slower rates, in cities and rural communities. Across geographic boundaries, the nation has a shared interest in the fight against poverty. If we cannot come together on this issue, we will not be successful in that fight in any one place – urban, rural or suburban.
Black people struggling with debts are far less likely than their white peers to gain lasting relief from bankruptcy, according to a ProPublica analysis. Primarily to blame is a style of bankruptcy practiced by lawyers in the South.
NOVASHA MILLER PUSHED THROUGH the revolving doors of the black glass tower on Jefferson Avenue last December and felt a rush of déjà vu. The building, conspicuous in Memphis’ modest skyline along the Mississippi River, looms over its neighbors. Then she remembered: Years ago, as a teenager, she’d accompanied her mother inside.
Now she was 32, herself the mother of a teenager , and she was entering the same door, taking the same elevator. Like her mother before her, Miller was filing for bankruptcy.
She’d cried when she made the decision, but with three boys and one uneven paycheck, every month was a narrow escape. A debt collector had recently won a court judgment against her and, along with that, the ability to seize a chunk of her pay. Soon, she would be forced to decide between groceries or electricity.
Bankruptcy, she figured, despite its stink of shame and failure, would stop all that. She could begin anew: older, wiser, and with a job at a catering company that paid $10.50 an hour, a good bump from her last one. She could keep dreaming of a life where she had money left over at the end of each month, a chance of one day owning a home.
What Miller didn’t know when she swallowed her pride and called a local bankruptcy attorney is that she would probably end up right back where she started, with the same debts, in the same crisis. For the black debtors who, for generations, have made Memphis the bankruptcy capital of the U.S., the system delivers neither forgiveness nor renewal.
Up on the sixth floor of that tower where I met Miller last February, the U.S. Bankruptcy Court for the Western District of Tennessee appeared to be a well-functioning machine. Debtors, nearly all black like her, crowded the wedge-shaped waiting area as lawyers, paralegals and court staff, almost all white, milled about in front. Hundreds of cases are filed here every week, and those who oversee and administer the process all proudly note the court’s marvelous efficiency. Millions of dollars flow smoothly to creditors, to the court, to bankruptcy attorneys.
But the machine hides a harsh reality. When ProPublica analyzed consumer bankruptcy filings nationwide, the district stood out, both for the stunning number of cases in which debtors were unable to get relief, and for the reasons why. In Memphis, an entrenched legal culture has made bankruptcy a boon for attorneys while miring clients like Miller in a cycle of futility.
Under federal bankruptcy law, people overwhelmed by debt have a choice: They can either file under Chapter 7, which wipes out debts and, since most filers lack significant assets, allows them to keep what little they have. Or they can choose Chapter 13, which usually requires five years of payments to creditors before any debts are eliminated, but blocks foreclosures and car repossessions as long as debtors can keep up. In most of the country, Chapter 7 is the overwhelming choice. Only in the South, in a band of states stretching from North Carolina to Texas, is Chapter 13 predominant.
The responsibility of knowing which path to pick falls to those seeking relief. In Memphis, about three-quarters of filings are under Chapter 13. That’s how Miller filed. She thought the two chapters were “the same,” she told me.
Initially, they are. Upon filing, debtors are shielded from garnishments and debt collectors. But whereas under Chapter 7 those protections are generally made permanent after a few months, under Chapter 13 they last only as long as payments are made. Most Chapter 13 filers in Memphis don’t last a year, let alone five.
As efficiently as cases are opened, they are closed — usually because debtors fail to keep up with payments, according to a ProPublica analysis of court data. In 2015, over 9,000 cases in the district were dismissed — more cases than were filed in 22 other states that year. Less than a third of Chapter 13 cases in the district result in a discharge of debts. And when their cases are dismissed, debtors are often in worse straits, because as they struggled to make payments, the interest on their unpaid debts continued to mount. Once the refuge of bankruptcy is gone, the debt floods back larger than ever. They’ve borne the costs of bankruptcy — attorney and filing fees, a seven-year flag on their credit reports — without receiving its primary benefit. A system that is supposed to eliminate debt instead serves to magnify it.
Driving this tremendous churn of filings is a handful of bankruptcy attorneys with what sounds like an easy pitch: immediate relief, for free. In Memphis, it typically costs around $1,000 to hire an attorney to file a Chapter 7, but most attorneys will file a Chapter 13 for no money down. Ultimately, the fees for Chapter 13 filings are higher — upwards of $3,000 — but the payments are stretched over time. For many people, this is the only option they can afford: debt relief on credit. For attorneys, they gain clients — and a regular flow of fees — they might not otherwise get, even if few of their clients get lasting relief.
Chapter 7 Filing Rates Are Higher in Black Areas, With Patterns Similar to White Areas…
Chapter 7 Filings per 1,000 Residents — Majority Black Zip Codes vs. Majority White Zip Code
…But Chapter 13 Filing Rates Are Extremely High in Black Areas, With a Larger Racial Gap
Chapter 13 Filings per 1,000 Residents — Majority Black Zip Codes vs. Majority White Zip Codes
Source: Department of Justice data, ProPublica analysis
For black filers in Memphis, relief is particularly rare. They are more likely than their white peers to file under Chapter 13 and less likely to complete a Chapter 13 plan. Because failure is so frequent in Memphis, many people file again and again. In 2015, about half of the black debtors who filed under Chapter 13 in the district had done so at least once before in the previous five years. Some had filed as many as 20 times over their lifetimes. Here, bankruptcy is often not the one-time rescue it was envisioned to be, but rather a way for the poor to hold on to basic necessities like electricity for a couple months.
“The way we have it set up, our culture, has a lot of unintended consequences,” said Judge Jennie Latta, one of five bankruptcy judges in the Western District of Tennessee. Since 1997, when she took the bench, the racial disparities in Memphis have been evident, she said. “It was troubling to me then, and it’s still troubling to me.”
When I asked judges, trustees, who administer the cases, and debtor attorneys what could be done to reduce racial disparities and improve outcomes, I was mostly met with resignation. I heard a lot about the poverty in Memphis and a legal culture with deeply rooted traditions. But ProPublica’s analysis identified bankruptcy attorneys in Memphis who had much more success in getting their black clients out of debt. These attorneys had a different approach, preferring Chapter 7 to Chapter 13, and, crucially, allowing more flexibility in what clients paid upfront in fees.
Scrutiny of Memphis is important, because the racial differences we found there are present across the country. Nationally, the odds of black debtors choosing Chapter 13 instead of Chapter 7 were more than twice as high as for white debtors with a similar financial profile. And once they chose Chapter 13, we found, the odds of their cases ending in dismissal — with no relief from their debts — were about 50 percent higher.
Meanwhile, the $0-down style of bankruptcy practiced in Memphis, long common across the South, is quietly growing in popularity elsewhere. Chicago in particular has seen an explosion of Chapter 13 filings in recent years. A recent study found that the “no money down” model is becoming more prevalent, prompting concerns that it is snaring increasing numbers of unsuspecting debtors and ultimately keeping them in debt.
ABOUT 10 MILES south of the black glass tower lies the community of Whitehaven. Famous as the site of Graceland, Elvis Presley’s mansion, its streets are lined with miles of humbler homes, mostly one- or two-bedroom bungalows. The houses reflect the range of financial security among Whitehaven’s almost exclusively black residents: Some lawns are immaculately kept in front of neat, pretty facades, while others run riot with weeds next to broken-down cars.
This is where Novasha Miller was born and raised. She went to Hillcrest High on Graceland Drive and still lives in the area. Here, bankruptcy has a startling ubiquity. Count the bankruptcies filed from 2011 through 2015 by residents of Whitehaven, and there is almost one for every three households.
Miller’s spiral downward began in late 2014, when she and her sons moved into a $545-per-month apartment in Highland Meadows, a complex pitched on its website as nestled in a “serene woodland setting.” Inside, roads wander around shaded clusters of two-story structures, some with boarded-up doors and windows.
Miller soon realized she’d made a mistake by signing the lease. Roaches emerged every time she cooked, she said. Underneath the kitchen sink, mold was spreading that seemed to aggravate her 10-year-old son’s asthma. The stove broke; then bedbugs arrived, leaving telltale marks up and down her and her boys’ arms.
Despite her calls and complaints, she said, management didn’t fix the mold issue and told her she’d have to pay for an exterminator herself. Finally, she decided to move. She wrote a letter saying she was breaking her lease and explaining why.
“My kids’ health is more important than anything, and I just had to leave,” she told me. (The company that manages Highland Meadows did not respond to requests for comment.)
A couple of months after she moved, Absolute Recovery Services, a collection agency, sent her a letter saying she owed $5,531 — a total that seemed inflated to Miller. If she didn’t pay up immediately, the agency wrote, it might sue. It followed through the next month, tacking on a $1,844 attorney fee, for a total bill of $7,375.
Derek Whitlock, the attorney who represented Absolute Recovery Services in its suit against Miller, provided ProPublica with an accounting of Miller’s debt. Only $1,635 was due to back rent; the rest stemmed from eight different types of fees — all of which, Whitlock said, Miller had “contractually agreed to.” Miller’s lease had also stated that residents were “responsible for keeping the premises free from infestation of pest, etc.,” he said.
With no attorney to represent her, Miller went to court. Delayed by a search for parking, she missed her case, and Absolute Recovery won a judgment against her. A court employee told her the agency could soon move to garnish her paycheck, she said.
Under Tennessee law, debt collectors can seize up to a quarter of debtors’ take-home pay, and in Shelby County, which contains Memphis, they sought to do so in over 21,000 cases in 2015, according to a ProPublica analysis of court records. Such garnishments are far more common in black neighborhoods.
“I cried, stressing at work,” said Miller. “I couldn’t work, trying to figure out what to do.”
At the time, Miller earned $9 an hour working for a catering company where her hours were often cut without warning. Although she’d never had an extended stretch of unemployment, the last several years had been a struggle. She still carried $19,000 in student loans from a cosmetology program, and a $1,100 loan from a car title lender, TitleMax, which she’d used to cover one month’s shortfall. TitleMax routinely lends at annual interest rates above 150 percent in Tennessee, and every month Miller had to come up with about $100 in interest to keep the company from seizing her 2003 Pontiac Grand Prix. If Absolute Recovery garnished her wages, Miller stood to lose her apartment, her electricity or the car she drove to work.
The pressure, she said, pushed her into bankruptcy court. “It’s hard out here,” she said. “I hate that I had to go through it just to keep people from garnishing my check.”
She Googled “bankruptcy attorney” and landed on the website of Arthur Ray, who has been practicing in Memphis since the 1970s. His website was topped with “$0” in large type. “Most of our Chapter 13 bankruptcies are filed for $0 attorney’s fee up front.” She called and made an appointment.
EARLIER THIS YEAR, I headed to Memphis to meet people like Miller and find out why attorneys there kept funneling their black clients into Chapter 13 plans when so few could complete them. I came armed with what amounted to a score sheet for each attorney, showing how their black and white clients had fared. ProPublica had taken every case filed in the district over 15 years, paired it with census information and put it on a map. In a starkly segregated city like Memphis, we could deduce the race of their clients with confidence based on where they lived.
I caught up with Ray by phone. Like most of the higher volume lawyers in the district, Ray is white while most of his clients are black. About nine out of every 10 of his cases is a Chapter 13. And he was twice as likely to file under Chapter 7 for a white client as he was for a black client.
None of this troubles Ray in the least. If Chapter 13 has an evangelist, it’s Ray, who trumpets its attributes unapologetically. In his eyes, debtors need Chapter 13 to train them to get their financial houses in order and instill discipline on their unruly spending.
“A Chapter 13 shows people how to live without buying things for that 60-month plan,” he said. “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.”
When debtors squander Chapter 7’s power to erase debt, he argued, they are stuck — barred from filing again for eight years. Better to keep that option in reserve for something truly catastrophic, he said.
Ray conceded that most of his clients do not successfully complete their Chapter 13 plans, but he argued that wasn’t so bad. “It may be a long time before the creditors come after them,” he said. And when the phone calls and the legal notices do come back, “then they can file again.”
In Western Tennessee, More Bankruptcy Filings, But Less Debt Relief for Black Debtors
Filings by Disposition, 2008-2010, All Chapters, Majority Black Census Tracts vs. Majority White Census Tracts
Source: Department of Justice data, ProPublica analysis. Even though residents of the mostly black areas in the Western District of Tennessee file for bankruptcy in much higher numbers than residents of white areas, they are less likely to actually see any debt discharged, or wiped out. With Chapter 7 and Chapter 13 filings combined, there were almost 8,000 more filings by debtors from mostly black census tracts from 2008-2010, but debtors from mostly white tracts received almost 3,000 more discharges.
I told Ray that Novasha Miller hadn’t understood the difference between the two chapters. Ray was not troubled by this either. As required by law, he said, he provides clients with documents explaining the difference, but any client who asks about Chapter 7 will get an argument from him. “They need to learn how to live not buying things on credit,” he said.
Few attorneys are likely to express this paternalistic view as bluntly as Ray, but the idea that bankruptcy courts should rehabilitate debtors instead of simply freeing them of their debts dates back to the 1930s, when, buoyed by creditors’ lobbying efforts, Chapter 13 first became law. It’s a form of bankruptcy that sprang from the South: Started as an experiment by the bankruptcy court in Birmingham, Alabama, it was added to the federal bankruptcy code through a bill authored by a Memphis congressman. To this day, many see Chapter 13 as the more honorable form of bankruptcy because it includes some attempt to repay debts.
But when I asked some of Ray’s colleagues why so many of their clients filed under Chapter 13, honor was rarely mentioned. Instead, they said it was about holding on.
“Chapter 13 is generally a ‘keep your stuff’ chapter,” is how Bert Benham, a Memphis bankruptcy attorney, put it.
Most people who end up filing in the district don’t own much. In 2015, 69 percent of those who filed under Chapter 13 didn’t own a home, and the median, or typical, income was less than $23,000 per year.
For many people, the most important thing is keeping their car, a necessity in Memphis, which has little public transportation. Used car lots abound, offering subprime credit. When borrowers fall behind and lenders threaten repossession, Chapter 7 won’t stop that from happening. But Chapter 13 allows secured debts to be repaid over the course of the plan. In theory, loan payments on a car or mortgage can be reduced to an affordable level, providing time to catch up without fear of repossession or foreclosure.
Lured by this promise, desperate Chapter 13 filers can spend years caught in a loop. One Whitehaven resident told me how, in order to hold on to her car, she’d filed under Chapter 13 four times since 2011. The first time, she lost her job a year and a half after filing, and her case was dismissed after she fell behind. She immediately filed again to keep the car for job interviews, using unemployment benefits to make the payments until she couldn’t. She then filed a third time. Finally in 2014, after her third dismissal, she got a new part-time job paying $11 an hour and filed again.
She still has two years of payments to go and will have spent most of her 30’s trying to hold on to her car. “If I’d known,” she said, “I just would have let my car go.”
Bernise Fulwiley, 60, filed for Chapter 13 in 2014 to avoid foreclosure on her home, a brick bungalow with a large maple in the yard on a corner in Whitehaven. The following year, she lost her warehouse job when she required foot surgery and couldn’t keep up her payments. She got another warehouse job, earning $9.50 an hour, and filed again. She has kept up the payments for two years, and is determined to make it for three more.
“‘God, go before me. Open this door! Help me, Lord!’ That’s been my prayer,” she said. “I ain’t gonna never give up.”
For decades, the most prolific bankruptcy firm in Memphis has been Jimmy McElroy’s, known for its long-running TV commercials featuring the now-deceased Ruby Wilson, a legendary blues and gospel singer dubbed the Queen of Beale Street. At the end of 30-second spots, she exclaimed, “Miss Ruby sings the blues, and you don’t have to!”
McElroy, a mild-mannered white man in his 70s with a genteel lilt to his speech, told me that “the ultimate success” for a Chapter 13 filing is “to pay it out, get a discharge, get out of debt. And then learn to live within your means.” From 2011 through 2015, McElroy’s firm filed over 8,000 Chapter 13 cases and fewer than 900 Chapter 7 cases. About 80 percent of his clients come from predominantly black neighborhoods.
But “ultimate success” is rare at his firm. Only about one in five of the Chapter 13 cases filed by his black clients reached discharge, a rate typical for the district. When I asked why, McElroy, whose office is in the same tower as the bankruptcy court, said clients generally “get the temporary relief they needed,” but then things just happen: “They lose their job. They get sick. They get a divorce.”
Sometimes Chapter 7 does seem like a better choice, he said, but the client can’t afford to pay the attorney fee, which, at his firm, is about $1,000. In those cases, he’ll advise them to start with a Chapter 13, since it’s “more affordable to get into,” he said. “I tell them … ‘If you get in a better situation, we can convert later.’”
Debtors are, indeed, allowed to switch from Chapter 13 to Chapter 7 after their cases have begun, although it typically requires paying an additional attorney fee. But this rarely happens in the district. Only about 5 percent of Chapter 13 filings since 2008 converted to Chapter 7, according to our analysis. For McElroy’s firm’s cases, it was 2 percent.
OFTEN IN MEMPHIS, the whole goal of bankruptcy is just to address basic needs, even if only for a month or two.
Last year, Memphis Light, Gas and Water cut off customers’ electricity for nonpayment 98,000 times. It’s an “astoundingly high” number given that Memphis provides electricity to fewer than 400,000 customers and “far higher than any other large urban utility that I’ve seen,” said John Howat, senior energy analyst with the National Consumer Law Center.
Nearly half the Chapter 13 cases filed by black residents in the district had utility debt, our analysis of 2010 filings found. The typical debt with the utility company was $1,100. For customers with poor credit, the utility has a policy of disconnecting service within a couple months if the arrears grow beyond $200.
MLGW does offer programs for low-income customers and installment plans for those who fall behind. “We have probably some of the most liberal customer assistance programs of any utility in the country,” said Gale Carson, spokeswoman for MLGW.
But that assistance is limited to just a few thousand households. And the installment plans require customers to make the payments in addition to their normal monthly bills.
By declaring bankruptcy, debtors can start a monthly Chapter 13 plan tied to their income and get the power turned back on within a month or so.
In February, I visited Michael Baloga, an attorney at Long, Umsted, Jones & Kriger, at the firm’s downtown storefront, just down the street from the Shelby County Jail and next door to a bail bond agent.
“Chapter 13 bankruptcy can be a necessary evil at times,” he told me. “Like, for today, there are people who are coming in because it’s cold, and they don’t have electricity.”
Baloga said he didn’t like to file cases just for that reason. “But on the other hand, am I going to let them sit and freeze in their home because they don’t have it? … I know that they’re going to file the bankruptcy and that they’re not going to stay in it very long. In the alternative, am I just going to turn them away and say, ‘No, you’re not going to get a chance at all?’”
For the firm’s predominantly poor and black clientele, the chances are remarkably low: Only one in 10 of the cases result in a discharge. Most don’t last six months.
Using bankruptcy this way “seems like using a sledgehammer to hang a picture,” said Judge Latta. But she understands why debtors do it. “I think bankruptcy, in Memphis anyway, is very much part of the social safety net,” she said, “and all these problems fall down into it.”
About 18,000 times each year, Tennessee suspends the driver’s license of a Shelby County resident for failing to pay a traffic fine, according to state data obtained by Just City, a Memphis nonprofit advocacy organization. About 84 percent are black drivers, although only half of Shelby County’s residents are black.
In 2010, about a quarter of black residents filing Chapter 13 had outstanding debt with the Shelby County General Sessions Criminal Court, which handles mostly misdemeanors and traffic offenses, our data shows. Their typical debt was around $1,600.
Court officials said licenses are only suspended if defendants fail to pay fines within 12 months. The court offers installment plans, including one called the Driver’s Assistance Program that allows drivers to regain their licenses. But only about 230 people were enrolled in the program as of March, they said.
For those who can’t afford or don’t qualify for the court’s programs, Chapter 13 provides an answer. They can get their licenses reactivated within a matter of months and stretch payments over five years, if they make it that long. Such fines can’t be eliminated through Chapter 7.
In Chicago, similar pressures have led to a recent boom in Chapter 13 filings. Chapter 13 filings by black residents in the Northern District of Illinois rose 88 percent from 2011 to 2015, we found. There, the issue is mostly parking tickets, according to ProPublica’s analysis and a recent academic study of filings in Cook County. But, like Memphis, it’s overwhelmingly black debtors who file for Chapter 13 to forestall license suspensions or car seizures.
In Memphis, that means the debtors who use the bankruptcy system the most — low-income black debtors — fare the worst.
“I say all the time that in Memphis, debtors don’t earn a living wage,” said Sylvia Brown, one of the two trustees for Chapter 13 cases in Memphis.
A FEW FLOORS ABOVE THE BANKRUPTCY COURT are the offices of Cohen & Fila, a firm with a mostly poor clientele and one of the highest volume practices in the district. I asked Tom Fila, a Yankee transplant who has practiced bankruptcy law in Memphis for more than 20 years, about one of his clients: The firm had filed 17 cases on her behalf, all but two under Chapter 13. She was one of at least 465 people who had filed for bankruptcy 10 or more times in the district between 2001 and 2015, ProPublica’s analysis found. These repeat filers tend to be among the poorest.
Fila bristled at the implication that his firm had filed the cases for any reason but the best interest of the client. “I’m not making money on these cases, and I probably shouldn’t file them,” he told me. “I often tell my clients that repeated filings aren’t doing them any good. They are ending up in the same spot they started in, only now they have multiple bankruptcy cases on their credit report … but at the end of the day I’m not the one living without utilities or being evicted or being without transportation.”
Of course, most of the time attorneys in the district do get paid something. When we analyzed the Chapter 13 cases filed in 2010, we found that, on average, attorneys in the district collected $1,340 per case out of their full $3,000 fee. Some firms, like Fila’s, collected much less (about $700), and some collected more.
But what has made bankruptcy a viable business for the biggest firms in Memphis for so long is the sheer volume. From the 12,000-plus Chapter 13 cases they filed in 2010, we estimate that attorneys reaped at least $16 million in attorney fees over the next five years. McElroy’s firm, the largest, collected at least $2 million.
Things have worked this way in the district for as long as anyone can remember. The district’s chief judge, David Kennedy, who has presided over cases since 1980, said attorneys have been charging $0 down to file Chapter 13s at least since the 1970s.
He sees no clear need for reform. Chapter 13 “provides, I think, better relief, depending on the circumstances,” he said, adding that the large number of dismissals is not necessarily bad. “Just because it doesn’t go to discharge doesn’t mean it’s a failed case.” A homeowner might file Chapter 13 to stop a foreclosure, he said, then use the breathing room to work out a loan modification with the mortgage servicer and drop the case voluntarily.
That undoubtedly does happen. But most debtors in the district don’t own a home.
Judge Latta said efforts to help the poor file under Chapter 7 for free have met with resistance. “We get a lot of pushback on pro bono programs here,” she said. “[Attorneys] say, ‘But, judge, we can put them in a Chapter 13, and we can get paid for that.’”
It’s no secret in Memphis that bankruptcy works differently outside the South, but the scope of that contrast is staggering. In 2015, for example, there were 9,000 Chapter 13 cases filed in Shelby County, while in Brooklyn, New York, there were fewer than 300. Brooklyn has a similar poverty rate, median income and higher housing costs. Like Shelby County, it has a large black population. It also has 1.6 million more people.
What’s the biggest difference? How bankruptcy attorneys are paid. In Brooklyn, attorneys usually ask for around $2,000 upfront to file a Chapter 13, said Michael Macco, a trustee in the Eastern District of New York. As a result, poorer households simply can’t afford to file. The typical Chapter 13 debtor who hired an attorney in Brooklyn in 2015 was a middle-income homeowner with $420,000 in assets — over 40 times more in assets than filers in Shelby County.
The reasons for vast differences like these among courts are largely arbitrary. While bankruptcy is a federal institution, ruled by laws made in Washington, D.C., each local court is essentially its own kingdom with its own customs shaped by the judges, trustees and attorneys who work there. Scrutiny of these differences, and how they affect debtors, has been scant.
While judges like Kennedy are untroubled by the flood of unsuccessful Chapter 13s, our analysis found Memphis attorneys who have built successful bankruptcy practices in a different way. In an office park on the eastern edge of the city, I met Jerome Payne, who has filed more Chapter 7s on behalf of black clients than anyone in the district in recent years, despite not being in the top 10 firms in terms of total volume.
That alone would make Payne stand out. But Payne is also, unlike all but a few debtor attorneys in Memphis, black.
A cop turned nurse turned attorney, Payne, 66, has been practicing bankruptcy law in Memphis since the 1990s. Inside his office, the thick carpeting and friendly banter between Payne and his two long-standing employees give the place a homey feel, albeit a home with files stacked everywhere and large binders labeled “GARNISHMENTS” spilling out of a cabinet.
African-American identity is a major part of his practice. When his firm sends out letters to prospective clients — usually people who have been sued over a debt – he tries to make sure they know. “I use black heritage stamps,” he said. Sometimes he uses Kwanzaa stamps. He includes a page with inspirational sayings, like one with a quote from Marcus Garvey, a leader of the Black Nationalist movement, who is depicted with his body in the shape of Africa.
The emphasis on blackness is not just a marketing gimmick, he said. Because the clients are “people who look like me,” he said, “they feel more comfortable with me.”
And that, he said, may help in convincing debtors that Chapter 7 is a better choice. Payne’s challenge, he said, is getting them “to take the emotions out of a home, the apartment, out of the vehicle” and decide that they are better off without the debt.
This discussion is what he calls his “come-to-Jesus meeting.” Contrary to Arthur Ray’s emphasis on teaching his clients financial discipline through five years of payments, Payne promotes the discipline of letting go of possessions they can’t afford.
“Me being African American, and me understanding my community, maybe I’ve been more successful in showing them that this is not the way you ought to go,” he said.
Crucially, Payne also approaches fees differently. Whether it’s a Chapter 7 or Chapter 13, the down payment is usually a couple hundred dollars, and his clients can pay the remainder in installments.
He doesn’t file Chapter 13 cases for no money down, because he just doesn’t like the idea. And he has an employee, instead of him, discuss fee arrangements with clients, he said, because “I found that it colors the way that I do business.”
Brad George is another attorney in the district who often files Chapter 7 cases for his clients. His approach is simple. “It’s not rocket science, I can tell you that,” said George, who is white and has practiced bankruptcy in Memphis for 20 years. If there is a good reason to do a Chapter 13, like a threatened foreclosure or driver’s license issue, then he will file that way. Otherwise, he said, “I think you should try and always, always, always do a [Chapter 7].”
To file a Chapter 7 with George, it costs the debtor $555, with most of that due upfront. That is about half of what many other attorneys charge in Memphis. But, to George, it just seems like enough.
“I figure I spend about two hours on average per Chapter 7 [case],” he said. “So that’s pretty fair, I’d say.”
George also doesn’t file Chapter 13 cases for no money down, instead asking for around $200 dollars, giving his clients a much more balanced choice between how much money they have to come up with to file Chapter 7 versus Chapter 13.
George’s black clients file under Chapter 7 almost half the time, according to our analysis, a rate that is almost two and a half times what is typical in the district. There is also little racial disparity in what portion of his black and white clients end up in Chapter 7.
Payne and George agree that their flexibility with fees is likely a key reason they are able to file more Chapter 7 cases for black clients.
There are understandable reasons why attorneys tend to be less flexible with Chapter 7 fees. When debtors receive a discharge of their debts at the end of the case, outstanding fees to their attorneys are also wiped out. Any further payments are voluntary. As a result, debtor attorneys — in Memphis or anywhere else — generally require the entirety of their fee upfront. To address this problem, some scholars have called for Congress to change the law to make attorney fees clearly exempt from discharge.
Such a change could have a large effect. The firm that files the most bankruptcy cases in Atlanta, for example, files Chapter 7 cases for $0 down, with the entirety of the fee due through an installment plan that lasts several months. The chief judge in the Northern District of Georgia has ruled that such arrangements are legal, and other large firms in the Atlanta area have adopted the practice.
The result is clear. In the heart of the South, most of the filings in the Northern District of Georgia are under Chapter 7 — compared to less than 30 percent in the rest of the state. And notably, black debtors in that district file under Chapter 7 almost half the time, a rate significantly higher than even the white debtors in the Western District of Tennessee.
FOR NOW, things in Memphis continue as they seemingly always have. In April, less than six months after it began, Novasha Miller’s Chapter 13 case was dismissed. Though she hasn’t heard anything yet, her old landlord’s collection agency is again free to attempt garnishment of her wages.
Miller said that a miscommunication with her attorney led to the dismissal. After she changed jobs again (the new one pays a little bit less, $9.36 an hour, but it’s full-time and she likes the people), she notified Ray’s office, she said, but the plan payments were never set up to be automatically withdrawn from her paychecks. However it happened, having paid about $600, all of which was absorbed by court and attorney fees, she was back to square one. Choosing Chapter 7 could have resulted in her emerging from bankruptcy with her student loan as her only remaining debt. Instead, her debts, having gone unpaid for months, were now larger — she’s not clear yet just how much — the interest applied as if the bankruptcy had never happened.
She is thinking of filing again, maybe with a different attorney. And hopefully, she said, this time it’ll work out.
Republished with permission under license from ProPublica.
'In our country,' said bill co-sponsor Sen. Kamala Harris, 'whether you stay in jail or not is wholly determined by whether you're wealthy or not – and that's wrong.'
Civil liberties and criminal justice reform groups are celebrating the introduction of a new bill in the U.S. Senate on Thursday that would overhaul the nation's money bail system which critics have long decried for incarcerating people regardless of guilt or innocence but simply because of their inability to pay.
Introduced by Sens. Kamala Harris (D-Calif) and Rand Paul (R-Ky.), the Pretrial Integrity and Safety Act of 2017 is being applauded for addressing at least a portion of the pervasive inequality found throughout the U.S. justice system.
"Too many people in this country must spend weeks, months, or even years in jail waiting for trial only because they can't afford bail," said Kanya Bennett, legislative counsel at the American Civil Liberties Union, which has endorsed the bill. "Even though these people are innocent in the eyes of the law, they’re punished, deprived of their freedom with disastrous consequences for their families and their lives."
The bill, which can be read in full here, would provide funding and federal guidelines to incentivize state and local governments to either scrap their money bail systems or greatly reform them.
"Our justice system was designed with a promise: to treat all people equally," Sen. Harris said in a statement. "Yet more than 450,000 Americans sit in jail today awaiting trial and many of them cannot afford 'money bail.' In our country, whether you stay in jail or not is wholly determined by whether you're wealthy or not – and that's wrong. We must come together to reform a bail system that is discriminatory, wasteful, and fails to keep our communities safe."
By specifying that any conditions placed on a defendant's release "should be based on the least restrictive, non-financial conditions that a judicial officer determines is necessary," the bill could potentially limit the negative impact on individuals and families—while also providing local governments huge savings. Ames Grawert, a criminal justice researcher with the Brennan Center for Justice, told the Guardian the proposal could go a long way in reversing some of the policies that have driven up incarceration rates in the last decades.
"We know that the 1984 [tough-on] crime bill did have an effect on states, did convince states to adopt tougher sentencing laws, did convince them to build more prisons – so the idea is that basically, if you flip those incentives on their head, maybe you could incentivize a different kind of behavior," said Grawert.
While the bill is far from perfect, said the ACLU's Bennet, "its reforms would be progress towards fixing the systematic problems that have led to mass incarceration."
Republished with permission under license from CommonDreams.
Living in West Virginia, perhaps the nation’s poorest state, I have also seen the benefits of the ACA’s Medicaid expansion since 2014.
To understand how the ACHA’s proposed changes to Medicaid would affect people and our health care system, let’s look more closely at the program.
What is Medicaid?
Created in 1965, Medicaid today provides health care services for 75 million Americans. It is jointly administered by the federal government and the states. The federal government pays at least 50 percent of the costs of the program. For particularly poor states, the federal government’s contribution can exceed 75 percent.
Medicaid helps many Americans who are generally not considered “needy.” For example, the Katie Beckett program provides support to families with children with significant disabilities without regard to parental income.
However, the American Health Care Act goes further. Specifically, it alters the funding mechanism for the entire Medicaid program. Instead, it provides a set amount of funding per individual enrolled in Medicaid. In doing so, it ends the federal government’s open-ended commitment to providing health care to America’s neediest populations.
What would be the effects of dismantling Medicaid?
Both the American Health Care Act and the Trump budget would be challenging for the program. In combination, I believe they would be truly devastating.
The cuts would force millions of Americans into uninsurance. Confronted with medical needs, these Americans will be forced to choose between food and shelter and medical treatment for themselves and their families. They would also force millions of Americans into medical bankruptcy, similar to the situation prior to the ACA.
The cuts would also affect the broader American health care system. They would create incredible burdens on American hospitals and other safety net providers. Many of them are already operating on very thin margins.
Editor’s note: We’ve all heard of the great divide between life in rural and urban America. But what are the factors that contribute to these differences? We asked sociologists, economists, geographers and historians to describe the divide from different angles. The data paint a richer and sometimes surprising picture of the U.S. today.
1. Poverty is higher in rural areas
Discussions of poverty in the United States often mistakenly focus on urban areas. While urban poverty is a unique challenge, rates of poverty have historically been higher in rural than urban areas. In fact, levels of rural poverty were often double those in urban areas throughout the 1950s and 1960s.
While these rural-urban gaps have diminished markedly, substantial differences persist. In 2015, 16.7 percent of the rural population was poor, compared with 13.0 percent of the urban population overall – and 10.8 percent among those living in suburban areas outside of principal cities.
Contrary to common assumptions, substantial shares of the poor are employed. Approximately 45 percent of poor, prime-age (25-54) householders worked at least part of 2015 in rural and urban areas alike.
The link between work and poverty was different in the past. In the early 1980s, the share of the rural poor that was employed exceeded that in urban areas by more than 15 percent. Since then, more and more poor people in rural areas are also unemployed – a trend consistent with other patterns documented below.
That said, rural workers continue to benefit less from work than their urban counterparts. In 2015, 9.8 percent of rural, prime-age working householders were poor, compared with 6.8 percent of their urban counterparts. Nearly a third of the rural working poor faced extreme levels of deprivation, with family incomes below 50 percent of the poverty line, or approximately US$12,000 for a family of four.
Large shares of the rural workforce also live in economically precarious circumstances just above the poverty line. Nearly one in five rural working householders lived in families with incomes less than 150 percent of the poverty line. That’s nearly five percentage points more than among urban workers (13.5 percent).
According to recent research, rural-urban gaps in working poverty cannot be explained by rural workers’ levels of education, industry of employment or other similar factors that might affect earnings. Rural poverty – at least among workers – cannot be fully explained by the characteristics of the rural population. That means reducing rural poverty will require attention to the structure of rural economies and communities.
– Brian Thiede, Assistant Professor of Rural Sociology and Demography, Pennsylvania State University
2. Most new jobs aren’t in rural areas
It’s easy to see why many rural Americans believe the recession never ended: For them, it hasn’t.
Rural communities still haven’t recovered the jobs they lost in the recession. Census data show that the rural job market is smaller now – 4.26 percent smaller, to be exact – than it was in 2008. In these data are shuttered coal mines on the edges of rural towns and boarded-up gas stations on rural main streets. In these data are the angers, fears and frustrations of much of rural America.
This isn’t a new trend. Mechanization, environmental regulations and increased global competition have been slowly whittling away at resource extraction economies and driving jobs from rural communities for most of the 20th century. But the fact that what they’re experiencing now is simply the cold consequences of history likely brings little comfort to rural people. If anything, it only adds to their fear that what they once had is gone and it’s never coming back.
Nor is it likely that the slight increase in rural jobs since 2013 brings much comfort. As the resource extraction economy continues to shrink, most of the new jobs in rural areas are being created in the service sector. So Appalachian coal miners and Northwest loggers are now stocking shelves at the local Walmart.
The identity of rural communities used to be rooted in work. The signs at the entrances of their towns welcomed visitors to coal country or timber country. Towns named their high school mascots after the work that sustained them, like the Jordan Beetpickers in Utah or the Camas Papermakers in Washington. It used to be that, when someone first arrived at these towns, they knew what people did and that they were proud to do it.
That’s not so clear anymore. How do you communicate your communal identity when the work once at the center of that identity is gone, and calling the local high school football team the “Walmart Greeters” simply doesn’t have the same ring to it?
Looking at rural jobs data, is it so hard to understand why many rural people are nostalgic for the past and fearful for the future?
– Steven Beda, Instructor of History, University of Oregon
3. Disabilities are more common in rural areas
Disability matters in rural America. Data from the American Community Survey, an annual government poll, reveal that disability is more prevalent in rural counties than their urban counterparts.
The rate of disability increases from 11.8 percent in the most urban metropolitan counties to 15.6 percent in smaller micropolitan areas and 17.7 percent in the most rural, or noncore, counties.
While rural-urban differences in disability have been analyzed previously, researchers have had little opportunity to further explore this disparity, as updated data on rural disability were unavailable until recently. Fortunately, the census released updated new county-level disability estimates in 2014, ending a 14-year knowledge gap.
The release of these estimates has also allowed us to build a picture of geographic variations in disability across the nation. Disability rates vary significantly across the U.S. Although the national trend of higher disability rates in rural counties persists at the regional and even divisional level, it is clear that disability in rural America is not homogeneous. Rates of rural disability range from around 15 percent in the Great Plains to 21 percent in the central South.
While this survey provides a glimpse into the national prevalence of disability and reveals a persistent rural-urban disparity, it is important to note its limitations. Disability is the result of an interaction between an individual and his or her environment. Therefore, these data do not directly measure disability, as they measure only physical function and do not consider environmental factors such as inaccessible housing.
– Lillie Greiman and Andrew Myers, Project Directors at the Rural Institute for Inclusive Communities at the University of Montana; Christiane von Reichert, Professor of Geography, University of Montana
4. Rural areas are surprisingly entrepreneurial
The United States’ continuing economic dominance is perhaps most attributable to the very smallest elements of its economy: its entrepreneurial start-ups. Nearly 700,000 new job-creating businesses open each year. That’s almost 2,000 every day, each helping to create new market niches in the global economy.
Most people mistakenly believe these pioneering establishments occur in overwhelmingly in metropolitan areas, such as in the now-mythic start-up culture of Silicon Valley.
Yet, according to the U.S. Census Bureau, it is in fact nonmetropolitan counties that have higher rates of self-employed business proprietors than their metropolitan counterparts.
Furthermore, the more rural the county, the higher its level of entrepreneurship. Some of these counties have a farming legacy – perhaps the most entrepreneurial of occupations – but farmers represent less than one-sixth of business owners in nonmetro areas. Even for nonfarm enterprises, rural entrepreneurship rates are higher.
The reality is that rural areas have to be entrepreneurial, as industries with concentrations of wage and salary jobs are necessarily scarce.
Start-up businesses have notoriously difficult survival prospects. So it is perhaps even more surprising that relatively isolated nonmetropolitan businesses are on average more resilient than their metro cousins, despite the considerable economic advantages of urban areas, which boast a denser networks of workers, suppliers and markets. The resilience of rural start-ups is perhaps due to more cautious business practices in areas with few alternative employment options.
This resilience is also remarkably persistent over time, consistently being at least on par with metro start-ups, and regularly having survival rates up to 10 percentage points higher than in metro areas over 1990-2007.
– Stephan Weiler, Professor of Economics, Colorado State University; Tessa Conroy and Steve Deller, Professors of Economics, University of Wisconsin-Madison
The Ferguson Protest brought national attention to predatory court systems in the St. Louis Area. However, St. Louis wasn't the only local predatory system. The civil rights being demanded by groups such as Black Lives Matter ultimate help protect the rights and privileges of all American. Court.rchp.com exist to help teach Black people and others about the law and their rights and how to envoke them so they can better protect themselves from predatory situations.
We continue our look at what the ACLU calls an illegal debtors’ prison in Arkansas by speaking with a former resident who wrote a check for $1.07 for a loaf of bread. She describes how after her check bounced, her debt ballooned with fees and fines to nearly $400, and police officers twice came to her job to arrest her. Since then, she has been caught up in Sherwood’s Hot Checks Department. We are also joined by lawyer Kristen Clarke, president and executive director of the Lawyers’ Committee for Civil Rights Under Law, who says the woman’s experience is common.
Is an Arkansas Town Operating a "Hot Check" Court as an Illegal Debtors' Prison?
A woman in Sherwood, Arkansas, just spent 35 days in a county jail after she accidentally bounced a $29 check five years ago. Nikki Petree was sentenced to jail last month by a judge accused of running a debtors’ prison. She had already been arrested at least seven times over the bounced check and paid at least $600 in court fines. Her release comes as the Lawyers’ Committee for Civil Rights Under Law, the ACLU and an international law firm have filed a lawsuit to challenge the modern-day debtors’ prison in Sherwood. We speak with Kristen Clarke, president and executive director of the Lawyers’ Committee for Civil Rights Under Law, who says Sherwood jails people in violation of a long-standing law that forbids the incarceration of people for their failure to pay debts.
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: We’re also joined by Janice, who is a native of Little Rock, Arkansas, who’s been caught up in Sherwood’s Hot Checks Department for decades. One check she wrote for $1.07 for a loaf of bread bounced. The debt ballooned after fees and fines to nearly $400. She currently has a warrant in Sherwood’s Hot Checks Department and wishes to remain anonymous for fear of arrest.
So, Janice, you’re in profile; you don’t want to be seen. But explain what happened to you.
JANICE: On several occasions, I have been arrested by Sherwood Police Department for bounced checks, insufficient funds checks. I’ve even been arrested on my job—two different jobs, as a matter of fact, one—with two different hospitals. My checks has totaled, I would say, less than $1,000 worth of checks. And they’re little, small checks. I was a bad manager. I didn’t keep a good register, so, therefore, I had bounced checks. Some were $20. Hundred dollar may have been the highest number of checks that I wrote. But I have had accumulated fees up to thousands of dollars in fees and costs, on roughly less than $1,000 worth of checks.
JUAN GONZÁLEZ: And when you go into the—before the judge on these cases, what’s the process? What happens there?
JANICE: He just bring you before him, and, like they say, you sign a waiver. You go up before the judge, and he assesses your fees and court costs, and give you a monthly payment amount, until you have to pay this monthly payment by such, such date. You have a 10-day grace period. If it’s not paid, then there’s another failure-to-pay warrant issued and additional costs and fines assessed to the amount you already have.
AMY GOODMAN: Now, part of your struggle is you have MS—is that right, Janice? And you’re trying to deal with medical costs, as well?
AMY GOODMAN: And is this Judge Hale that you’re going before, who Kristen Clarke just described?
JANICE: Yes, it is.
AMY GOODMAN: Are you allowed to bring in a friend, a family member, a lawyer at your side?
JANICE: Now, if you do retain an attorney, an attorney can be there, but family members and friends are not allowed in.
AMY GOODMAN: So what is your situation right now?
JANICE: Right now, I have not been there since somewhere around 2008. And I have an active warrant, because I could not afford to pay the monthly payment that he had assessed of $200, because I feel as if I have paid, you know, restitution on the checks that I’ve previously wrote, but these are all accumulated fines and court costs that has been assessed.
JUAN GONZÁLEZ: And they’ve come on several occasions to arrest you on your job? I find this hard—this is a civil issue. Why they would be coming to arrest you on your job?
JANICE: Because that’s what they do. Even though they know your address, your home address, they will come out to your job, opposed to your home. And this has caused me to lose two jobs because of that.
JUAN GONZÁLEZ: Kristen Clarke, what about that, this issue of—I mean, normally, if somebody writes a check that they don’t have funds for, the bank will send them and issue, you know, a charge, but having law enforcement come in and arrest you for this, especially on your job, is this—is this illegal?
KRISTEN CLARKE: This abusive debt collection practice is part of the scheme. The clients that we represent in this case have had the cops show up at their doorstep and insist that they pay money now, or they are threatened with arrest. I am heartbroken to hear the story of the woman who just spoke. But again, we know that these are not isolated cases. This is a systemic pattern that exists across Sherwood and across Pulaski County. This is a court that has made big business out of preying on the backs of poor people. And they have made the focus on the most marginalized people in this community the focus of this court. People who have written small checks that are returned for insufficient funds, that is the focus of this court. And I can’t tell you how many people we’ve talked to who have stories like the woman who just spoke. We represent a cancer patient in this case. You know, he was hospitalized and receiving chemotherapy. And two—you know, a few checks bounced for very small amounts, and this man has been jailed and remains indebted in thousands of dollars to a court. Every time someone appears before Judge Hale, he imposes more court costs, more fines, more fees. And there is no way out for the people who are entrapped in this system.
AMY GOODMAN: So where does the lawsuit go from here, Kristen?
KRISTEN CLARKE: Well, we filed a federal class-action lawsuit. The woman who just spoke may indeed be somebody who is a member of this class. We will fight. We believe that Sherwood is a poster child, if you will. This is a classic example of a debtors’ prison. And we believe we’ll be successful at the end of the day in securing relief for the poor people of Sherwood. We believe that when somebody faces criminal charges, that they should have a lawyer by their side. They should have a judge who warns them about their rights and who counsels them about their rights and respects their due process rights. We will—we will fight on.
And then we’re going to look elsewhere around the country, because we know that this is a nationwide problem that we face. All around the country, we’ve seen the resurgence of debtors’ prisons. We’ve seen the criminalization of poverty. So, we are going to fight until we end this practice and bring our courts in line with that 1983 ruling from the Supreme Court that says you cannot lock poor people up merely because of their inability to pay a fine or fee.
AMY GOODMAN: Well, I want to thank you, Kristen Clarke, with the Lawyers’ Committee for Civil Rights Under Law. And, Janice, thank you for being with us—not her real name. She is in shadow, but that’s because of what she faces as a poor person who is a victim of Sherwood’s Hot Checks Department in Arkansas.
– END –
35 Days in Jail, For $29 Bounced Check
This is a rush transcript. Copy may not be in its final form.
JUAN GONZÁLEZ: We turn now to Arkansas to look at the case of a mother who just spent 35 days in a county jail after she accidentally bounced a $29 check five years ago. Nikki Petree was sentenced to jail just last month by a judge accused of running a debtors’ prison. Petree had already been arrested at least seven times over the bounced check, and paid at least $600 in court fines—more than 20 times the original debt. Petree said, quote, "Every time I go to jail, they’d let me out immediately for $100. They’d turn around and add $600 or $700 more to my bond. I couldn’t afford to pay. They cornered me, and there was no way out from underneath it. I felt overwhelmed and hopeless," she said.
AMY GOODMAN: Nikki Petree’s release comes as the Lawyers’ Committee for Civil Rights Under Law, the ACLU and the international law firm Morrison & Foerster have filed a class-action civil rights lawsuit challenging the modern-day debtors’ prison in Sherwood, Arkansas. The lawsuit was filed in the United States District Court for the Eastern District of Arkansas against the city of Sherwood, Arkansas; Pulaski County, Arkansas; and Judge Milas Hale. Petree is one of four named plaintiffs in the suit who allege their constitutional rights were violated by the Hot Check Division of the Sherwood District Court when they were jailed for their inability to pay court fines and fees. The lawsuit alleges that Sherwood, Pulaski County, engages in a policy and custom of jailing poor people who owe court fines, fees and costs stemming from misdemeanor bad check convictions. It also says they jail people in violation of a long-standing law that forbids the incarceration of people for their failure to pay debts.
For more, we’re going to Washington, D.C., to Kristen Clarke, president and executive director of the Lawyers’ Committee for Civil Rights Under Law, one of the groups that filed this lawsuit.
Welcome to Democracy Now! Can you explain exactly what happened to Nikki Petree? She ends up in jail for a $28-and-change check, that she didn’t realize had bounced because her last paycheck hadn’t put in, and she ends up in jail five years later?
KRISTEN CLARKE: Yeah, Nikki Petree is not alone. This is a debtors’ court system that’s been in place in Sherwood that preys on the backs of poor people. Nikki Petree is one woman who exemplifies what happens if you’re poor in Sherwood. She wrote a check that was returned for insufficient funds about five years ago. That check amounted to about $28. And since that time, she’s spent more than 25 days in jail and has paid more than $600 in fines to the local court system. That is money that she did not have. She lives below the poverty line. She remains indebted by more than $2,500 to the local court system. And she was jailed at the time that we filed this suit last week. And there are so many people like her in Sherwood. We filed this lawsuit to bring an end to a court system that we believe preys on the backs of poor people.
JUAN GONZÁLEZ: Well, Kristen Clarke, in that lawsuit, you raise the issue of why this is happening. You say that local courts and municipalities throughout Arkansas have used the threat and the reality of incarceration to trap their poorest citizens in a never-ending spiral of repetitive court proceedings and ever-increasing debt. But you say also that faced with opposition to increased taxes, municipalities have turned to creating a system of debtors’ prisons to fuel the demand for increased public revenue. How extensive is this in Arkansas that municipalities are using this as a new revenue source?
KRISTEN CLARKE: It’s not only the case in Arkansas, but all over the country we’re seeing the resurgence of debtors’ prisons. In Sherwood, this is a court that’s generated more than $12 million over the course of five years by imposing fines and fees over and over again on poor people who wrote checks to local merchants that were returned for insufficient funds. In Ferguson, Missouri, we saw a local court system that was built on this concept of entangling people in the court system for transit, for traffic offenses. That court generated $20 million off the backs of poor people in Ferguson. But we know that these are not isolated practices.
What’s happened is that in 1983 the Supreme Court made clear that this is unconstitutional, that you can’t lock people up merely because they are poor. But what we’ve seen is the resurgence of debtors’ prison, because there hasn’t been enough enforcement to put a check on court systems like the one in place in Sherwood. So we filed this lawsuit to bring an end to an era that’s been marked by a court system in which one judge presides, Judge Butch Hale, where he has disregarded the due process rights of poor people at every turn.
What happens in Sherwood is that people get on line outside his courtroom. They are forced to sign a waiver of their right to counsel. Nobody is allowed in that courtroom but the defendants. If you come with a family member, an advocate or friend, you’re not allowed in. There are no tapes or recordings of the proceedings, no transcripts of the proceedings. People appear without counsel by their side. No one explains their rights to them. And every time they stand up before Judge Butch Hale, he imposes fine, fee after fine and fee, and court costs on them, subjecting these people to a spiraling cycle of debt.
AMY GOODMAN: I mean, it is an astounding story about Nikki Petree. Didn’t she end up owing something like $2,600 on this $28-and-change check?
KRISTEN CLARKE: That’s exactly right. She remains indebted by more than $2,500, $2,600. She spent more than 25 days in jail. She’s already come out of pocket more than $600. And that’s money that she doesn’t have, because she, like everybody who appears before this court, are poor people. This is a court that preys on the most vulnerable people in Sherwood. And they make a profit off of this.
A recent UNICEF report found that the U.S. ranked 34th on the list of 35 developed countries surveyed on the well-being of children. According to the Pew Institute, children under the age of 18 are the most impoverished age population of Americans, and African-American children are almost four times as likely as white children to be in poverty.
My research indicates that this didn’t happen by chance. In a recent book, I examine social welfare policy developments in the U.S. over a 50-year period from the New Deal to the 1996 reforms. Findings reveal that U.S. welfare policies have, from their very inception, been discriminatory.
Blemished by a history of discrimination
It was the 1935 Social Security Act, introduced by the Franklin Roosevelt administration, that first committed the U.S. to the safety net philosophy.
From the beginning, the policy had two tiers that intended to protect families from loss of income.
On one level were the contributory social insurance programs that provided income support to the surviving dependents of workers in the event of their death or incapacitation and Social Security for retired older Americans.
The optimistic vision of the architects of the ADC program was that it would die “a natural death” with the rising quality of life in the country as a whole, resulting in more families becoming eligible for the work-related social insurance programs.
But this scenario was problematic for black Americans because of pervasive racial discrimination in employment in the decades of the 1930s and 1940s. During these decades, blacks typically worked in menial jobs. Not tied to the formal workforce, they were paid in cash and “off the books,” making them ineligible for social insurance programs that called for contributions through payroll taxes from both employers and employees.
Nor did blacks fare much better under ADC during these years.
The ADC was an extension of the state-operated mothers’ pension programs, where white widows were the primary beneficiaries. The criteria for eligibility and need were state-determined, so blacks continued to be barred from full participation because the country operated under the “separate but equal” doctrine adopted by the Supreme Court in 1896.
Jim Crow Laws and the separate but equal doctrine resulted in the creation of a two-track service delivery system in both law and custom, one for whites and one for blacks that were anything but equal.
Developments in the 1950s and ‘60’s further disadvantaged black families.
Because of the strong American work ethic, and preference for a “hand up” versus a “hand-out,” the means-tested, cash assistance programs for poor families – and especially ADC renamed AFDC – have never been popular among Americans. As FDR himself said in his 1935 State of the Union address to Congress, “the government must and shall quit this business of relief."
As the quality of life did indeed improve for whites, the number of white widows and their children on the AFDC rolls declined. At the same time, the easing of racial discrimination widened eligibility to more blacks, increasing the number of never-married women of color and their children who were born out of wedlock.
On the one hand, politicians wanted to reduce the cost of welfare. Under Reagan policies of New Federalism, social welfare expenditures were capped and responsibility for programs for poor families given back to states.
On the other hand, the demographic shift in the welfare rolls exacerbated the politics around welfare and racialized the debate.
Ronald Reagan’s “Welfare Queen” narrative only reinforced existing white stereotypes about blacks. The term "welfare queen", a derogatory term used in the U.S. to refer to women who allegedly misuse or collect excessive welfare payments through fraud, child endangerment, or manipulation; originates from media reporting in 1974.
Since then, the phrase "welfare queen" has remained a stigmatizing label and is most often directed toward black, single mothers.
“There’s a woman in Chicago. She has 80 names, 30 addressees, 12 Social Security cards and is collecting veterans’ benefits on four nonexistent deceased husbands. She’s got Medicaid, is getting food stamps and welfare under each of her names. Her tax-free cash income alone is over $150,000.”
Reagan’s assertions that the homeless were living on the streets by choice played to conventional wisdom about the causes of poverty, blamed poor people for their own misfortune and helped disparage government programs to help the poor.
The 1990s gear change
By the late 1990s efforts of reforms targeting the AFDC program shifted to more nuanced forms of racism with claims that the program encouraged out-of-wedlock births, irresponsible fatherhood and intergenerational dependency.
The political context for the 1996 reforms, then, was fueled by racist undertones that played into public angst about rising taxes and the national debt that were attributed to the high payout of welfare checks to people who were not carrying their own weight.
This emotionally charged environment distorted the poverty debate, and paved the way for a reform bill that many saw as excessively punitive in its harsh treatment of poor families.
Although credited to the Clinton administration, the blueprint for the 1996 welfare reform bill was crafted by a caucus of conservative Republicans led by Newt Gingrich as part of the Contract with America during the 1994 congressional election campaign.
Twice President Clinton vetoed the welfare reform bill sent to him by the GOP-dominated Congress. The third time he signed, creating much controversy, including the resignation of his own adviser on welfare reform, the leading scholar on poverty David Ellwood.
The new bill replaced the AFDC program with Temporary Assistance to Needy Families (TANF). Stricter work requirements required single mothers to find work within two years of receiving benefits. A five-year lifetime limit was imposed for receiving benefits. To reinforce traditional family values, a core principle of the Republican Party, teenage mothers were to be prohibited benefits, and fathers who were delinquent in child support payments were threatened with imprisonment. States were banned from using federally funded TANF for certain groups of immigrants and restrictions were placed on their eligibility to Medicaid, food stamps and Supplementary Social Security Income (SSI).
Despite many bleak predictions, favorable outcomes were reported on the 10th anniversary of the bill’s signing. Welfare rolls had declined. Mothers had moved from welfare to work and children had benefited psychologically from having an employed parent.
However, the volume of research generated at the 10-year benchmark has not been matched, in my observation, by that produced in years leading up to the 20-year anniversary.
More research in particular is needed to understand what is happening with families who have left welfare rolls because of passing the five-year lifetime limit for receiving benefits but have not sustained a foothold in an ever-increasing specialized workforce.
Disentangling intertwined effects of racism and poverty
U.S. welfare policy is, arguably, as much a reflection of its economic policies as it is of the nation’s troublesome history of racism.
Similarly, the notion that anyone who is willing to work hard can be rich is just as much a part of that DNA. Both have played an equal role in constraining adequate policy development for poor families and have been especially harmful to poor black families.
Racism has left an indelible mark on American institutions. In particular, it influences how we understand the causes of poverty and how we develop solutions for ending it.
Indeed, with the continual unraveling of the safety net, the 20th anniversary of welfare reforms can be an impetus for taking a closer look at how racism has shaped welfare policy in the U.S. and to what extent it accounts for the persistently high poverty rates for black children.
Dr. Alma J. Carten earned her Bachelor of Arts degree from Ohio University, her Master of Social Work degree from the Whitney M. Young Jr. School of Social Work, and her Doctorate in Social Welfare from Hunter College School of Social Work of the City University of New York. At NYU, Dr. Carten is former chair of the social welfare programs and policies area, and teaches in the social welfare policies and human behavior curricula sequences in the MSW program and social policy analysis in the doctoral program. Dr. Carten is also a consultant reviewer for the US Department of Juvenile Justice, Children’s Bureau of the Administration for Children and Families, helping to shape the national standards for child welfare outcomes. She has held a number of faculty appointments, including director and chair of the Westchester Social Work Education Consortium, and has taught at Hunter College School of Social Work and and the Behavioral Science Department at the New York City Policy Academy. Additionally, she was a member of the Administration for Children’s Services Commissioner’s Task Force on Minority Agencies. She served as president of the New York City Chapter of the National Association for Social Workers from 2000-2002.
Dr. Carten has professional experience in the private and public sectors. She served on the United Way of New York City agency membership Review Panel, and is a board member and consultant for a number of New York City voluntary social welfare agencies, the Administration for Children and Families, and the Children's Bureau at the federal level. Her work in government includes director of the Office of Adolescent Services for the New York City Human Resources Administration with responsibility for policy development and the design and implementation of citywide services for pregnant and parenting teens, interim commissioner of the Child Welfare Administration, special advisor to the HRA commissioner/administrator during the Dinkins administration, and appointed member of the Mayor's Commission on the Foster Care of Children. She has conducted research and published on family preservation programs, maternal substance abuse, child survivors of the HIV/AIDS epidemic, independent living services for adolescents, dimensions of abuse and neglect among Caribbean families, and neighborhood-based services and mental health services and the African American community.
Dr. Carten’s professional interests focus on child welfare, and the delivery of culturally competent services to children and families. She has conducted extensive research studying the Caribbean and African immigrant communities in the New York metropolitan area.
She co-edited with Dr. James R. Dumpson, entitled Removing Risk from Children: Shifting the Paradigm, and a chapter titled "Family Preservation, Neighborhood Based Services," in Child Welfare Services: An Africentric Perspective, Everett & Leashore, co-editors. Her most recent publication “Reflections on the American Social Welfare State: The Collected Papers of James R. Dumpson,” is published by NASW Press, and she is primary editor of "Anti-Racist Strategies for Transforming Health and Human Service" in press with Oxford University Press.