Category Archives: Poverty

Getting poorer while working harder: The ‘cliff effect’

By Susan R. Crandall, University of Massachusetts Boston

Forty percent of all working-age Americans sometimes struggle to pay their monthly bills.

There is no place in the country where a family supported by one minimum-wage worker with a full-time job can live and afford a 2-bedroom apartment at the average fair-market rent.

Average Walmart workers make twice the federal minimum wage but may still qualify for public benefits.

Given the pressure to earn enough to make ends meet, you would think that low-paid workers would be clamoring for raises. But this is not always the case.

Because so many American jobs don’t earn enough to pay for food, housing and other basic needs, many low-wage workers rely on public benefits that are only available to people in need, such as housing vouchers and Medicaid, to pay their bills.

Earning a little more money may not automatically increase their standard of living if it boosts their income to the point where they lose access to some or all of those benefits. That’s because the value of those lost benefits may outweigh their income gains.

I have researched this dynamic, which experts often call the “cliff effect,” for years to learn why workers weren’t succeeding at retaining their jobs following job training programs. Chief among the one step forward, two steps back problems the cliff effect causes: Low-paid workers can become reluctant to earn more money due to a fear that they will get worse off instead of better.

Trapped

“My supervisor wants to promote me,” a woman who gets housing assistance through the federal Section 8 housing voucher program, who I’ll call Josie, told me. “If my pay goes up, my rent will go up too. I don’t know if I’ll be able to afford my apartment,” Josie, a secretary at a Boston hospital, said.

These vouchers are available to Americans facing economic hardship, based on multiple criteria, including their income. Josie was worried that the bump up in pay that she’d get from the promotion would not make up for the loss of help she gets to pay her rent.

Given the possibility of a downside, many Americans in this situation decide it’s better to decline what on the surface looks like a good opportunity to escape poverty.

This uncertainty leads workers like Josie to forgo raises rather than take the risk of getting poorer while working harder. Having to stress out about potentially losing benefits that keep a roof over their heads and food on their table prolongs their own financial instability.

The pain isn’t just personal. Josie’s whole family misses out if she passes on an opportunity to earn more. The government loses a chance to stop using taxpayer dollars to cover benefits to someone who might not otherwise need them. The hospital can’t take full advantage of Josie’s proven talents.

Not always

Some low-paid workers do get farther behind when they should be getting ahead following a raise. But getting higher pay doesn’t always make anyone worse off. Whether it does or not depends on a lot of intersecting factors, like the local cost of living, the size of the raise, the size of the family and the benefits the worker receives.

The cliff effect is something social workers see their clients encounter all the time. And it’s maddeningly impossible to figure out for the people experiencing it and researchers like me alike.

Some benefits, notably the Supplemental Nutrition Assistance Program, the nation’s largest program designed to alleviate hunger, do include some incentives for recipients to earn more. SNAP, as today’s version of food stamps is known, tapers its phaseout for eligibility as incomes grow, rather than rendering people ineligible as soon as their pay crosses a single threshold.

But low-wage workers, such as those in food service, hospitality and retail have no way of knowing what to expect if they get SNAP benefits in combination with other government programs, such as housing vouchers and Medicaid.

At the heart of this problem is that the help millions Americans derive from the nation’s safety net comes from a fragmented system. Sorting out the repercussions of a higher income is nearly impossible because the safety net consists of a wide array of benefits programs administered by federal, state and local agencies. Each program and administrator has its own criteria, rules and restrictions.

Because that trepidation is sometimes unfounded, my colleagues at Project Hope Boston, a multi-service agency focused on moving the city’s families up and out of poverty, and I started to do something about it.

Fixing it

To help families assess risks tied to the cliff effect, we advised the Massachusetts Department of Transitional Assistance, which oversees state-administered safety net programs, to create a digital tool. Social workers are already using a preliminary version of it to show low-wage workers what they can probably expect to happen to their benefits if they earn more money.

You have to consider a lot of variables to see whether someone will experience the cliff effect. Massachusetts Department of Transitional Assistance, CC BY-ND

The Commonwealth of Massachusetts plans to put this tool online for all to use by Summer of 2019.

After plugging information about variables like how many members are in the household, what benefits everyone receives, the costs of their regular expenses like rent, child care and medical bills, they become better able to make informed choices about their career opportunity based on their family’s personal financial situation.

But workers need more than just a tool, they need help getting over the cliff. We also help workforce development programs implement the state’s new Learn to Earn initiative, which gives low-income families the financial coaching they need to make educated decisions that could affect their bottom line.

This problem is becoming increasingly urgent because dozens of states, cities and counties are enforcing higher minimum wages, and employers are voluntarily raising pay as well, including Target and Amazon. Some places, including Massachusetts and the cities of Minneapolis and St. Paul in Minnesota, are even phasing in $15-an-hour minimums.

But the reality is that even after some of the biggest minimum wage increases enacted at the state level lately, many families are not earning enough to pay for housing and other basic needs without help – for which they may no longer qualify. Several states, including Colorado and Florida, are seeking solutions.This complicated and frustrating challenge is just one symptom of an overarching problem. In addition to boosting wages, it will take major policy changes, like making child care more universally available and affordable, to offset the skyrocketing costs of living for American workers.The Conversation


Republished with permission under license from The Conversation.

It’s Getting Worse: The IRS Now Audits Poor Americans at About the Same Rate as the Top 1%

As the agency’s ability to audit the rich crumbles, its scrutiny of the poor has held steady in recent years. Meanwhile, a new study shows that audits of poor taxpayers make them far less likely to claim credits they might be entitled to.

employee exits the building in Washington, D.C.

By Paul Kiel

Every year, the IRS, starved of funds after years of budget cuts, loses hundreds more agents to retirement. And every year, the news gets better for the rich — especially those prone to go bold on their taxes. According to data released by the IRS last week, millionaires in 2018 were about 80% less likely to be audited than they were in 2011.

But poor taxpayers continue to bear the brunt of the IRS’ remaining force. As we reported last year, Americans who receive the earned income tax credit, one of the country’s largest anti-poverty programs, are audited at a higher rate than all but the richest taxpayers. The new data shows that the trend has only grown stronger.

Audits of the rich continue to plunge while those of the poor hold steady, and the two audit rates are converging. Last year, the top 1% of taxpayers by income were audited at a rate of 1.56%. EITC recipients, who typically have annual income under $20,000, were audited at 1.41%.

Part of the reason is ease. Audits of EITC recipients are largely automated and far less complicated.

“While the wealthy now have an open invitation to cheat, low-income taxpayers are receiving heightened scrutiny because they can be audited far more easily. All it takes is a letter instead of a team of investigators and lawyers,” said Sen. Ron Wyden, D-Ore., the ranking member of the Senate Finance Committee.

“We have two tax systems in this country,” he said, “and nothing illustrates that better than the IRS ignoring wealthy tax cheats while penalizing low-income workers over small mistakes.”

In a statement, IRS spokesman Dean Patterson acknowledged that the sharp decline in audits of the wealthy is due to the agency having lost so many skilled auditors. And he didn’t dispute that pursuing the poor is just easier.

Because EITC audits are largely conducted through the mail by lower-level employees from a central location, they are “less burdensome for taxpayers than in-person audits as they mail in their documentation and don’t have to take time out of the workday,” Patterson said.

“Correspondence audits are also the most efficient use of IRS’ limited examination resources.”

In April, Wyden, citing ProPublica’s reporting, asked IRS Commissioner Charles Rettig to deliver a plan to address the agency’s disproportionate focus on auditing the poor. The deadline has passed, but Wyden’s office said the senator still expects a response. The IRS did not comment on the delay.

The agency audited 382,000 recipients of the EITC in 2018, accounting for 43% of all audits of individuals last year. When we mapped the estimated audit rates for every county in America, the counties with the highest audit rates were poor, rural, mostly African American and in the South, a reflection of the high number of EITC claims there.

Natassia Smick and her husband were among those unlucky 382,000 households. We wrote about them last year. They live outside Los Angeles and saw their entire refund frozen in February 2018. For a couple who earned about $33,000 in 2017, that $7,300 refund was big money ($2,000 of it stemmed from the EITC). When it didn’t come, Smick said she had to abandon plans for catching up with her credit card debt.

After Smick sent in all her supporting documents, it took until this May to get a final answer from the IRS. Fourteen months after it all started, the IRS said it agreed Smick and her husband were due about $7,000, she said. But the agency disagreed on the remaining $350, because it couldn’t verify her husband’s employment for part of the year. Smick said the IRS was wrong to hold back the $350, but she couldn’t afford to contest it and further delay the $7,000.

“I’m not going to fight anymore,” she said. “We have already waited too long, and we are not in a financial position to wait another three months to appeal.”

A new study by academic and government researchers shows that there has been a big cost to these audits: They’ve discouraged hundreds of thousands of families who might qualify for the credit from claiming it in future years.

For poor taxpayers, the worst part of the EITC audits is usually the beginning. That’s because they almost always begin with the shock of the refund being held.

But the audits also hardly ever end well. According to data in the new study, most end without the taxpayer responding at all, and the poorer the audit target, the more likely that is to happen. Those with wage income under $10,000 per year, for instance, didn’t respond at all in 64% of the EITC audits. For those with income over $40,000 per year, that rate dipped to 35%.

The diminished response rate of the poorest taxpayers in part reflects that they are harder to reach: In 15% of those audits, the mail couldn’t be delivered. But earlier studies have also shown that many poor taxpayers don’t understand they are being audited or have trouble deciphering what the IRS is asking in its letters.

The EITC is aimed mainly at low-income workers with children. Last year, 26 million households received an average credit of about $2,500. Most EITC audits require taxpayers to dig up documents to show that a child meets the legal threshold of a “qualifying child,” a status that’s distinct from a dependent. The IRS has long blamed the law’s complexity as the main reason taxpayers may incorrectly claim the credit.

Smick was among the rare audit veterans who prevailed. Taxpayers rarely win against the IRS regardless of how likely they are to qualify for the credit, according to the new study, which was done by Day Manoli, an assistant professor of economics at the University of Texas at Austin, and researchers with the IRS and Treasury Department.

The authors sliced the population of EITC recipients into categories. At one end of the spectrum were tax returns with red flags that made it almost certain they would be audited. On the other end were returns very unlikely to be audited. But, looking over time, the outcomes of those audits weren’t all that different. When those returns with red flags were audited, the taxpayers prevailed 7% of the time. The taxpayers at the other end of the spectrum — the group seemingly most likely to qualify for the credit — only prevailed 10% of the time.

The audits have a long-term impact on the lives of those who go through them, the study found. In the years after they were audited, wage earners were 68% less likely to claim the credit compared with similar taxpayers who had not been audited. They were even 14% less likely to file taxes at all.

These taxpayers surrender “benefits from potentially legitimate EITC claims,” the study authors write, and, when they fail to file taxes at all, leave money on the table in the form of other credits and withholdings.

Because the IRS conducts so many EITC audits — between 380,000 and 600,000 per year over the past decade — at the very least, hundreds of thousands of taxpayers have likely avoided claiming the credit in response to having it denied through an audit. By discouraging people from claiming the credit, the audits clash with an avowed goal of the IRS: to encourage people to claim it. About a fifth of those eligible for the credit don’t claim it, and the IRS runs education campaigns to increase uptake.

EITC recipients are audited at such a high rate in part because Republicans in Congress have long pressured the IRS to reduce incorrect payments of the credit.

The IRS estimates that there was about $18 billion in incorrect claims in 2018. In most contexts, $18 billion is a big number, but when compared with the full scope of unpaid taxes, which likely total more than $600 billion each year, it’s not so big.

And while that $18 billion number, which Republicans touted as a “big problem” in the April hearing, is often cast as a kind of government waste, the study shows things are far more complicated.

In the years following an audit, the study found, children who were claimed on one taxpayer’s return often were claimed on a different taxpayer’s return. In other words, the kids might have just been claimed on the wrong return, and if that’s the case, the money should have been paid out, just to someone else.

The authors distinguish between the $18 billion in “gross overpayments” of the credit, which would include such misdirected payments, and what they call “net overpayments,” money that shouldn’t have been paid out at all. The “net” number, they say, could be one-third to one-half smaller than the “gross” one.

The IRS, in its statement, said the study had focused on a sample of only one type of taxpayer (single and head-of-household filers), and so the estimate of “net overpayments” should not be generalized to the entire EITC-claiming population.


Republished with permission under license from ProPublica, a Pulitzer Prize-winning investigative newsroom.

A Lawsuit Over Ferguson’s “Debtors Prison” Drags On

The federal class-action claims thousands of people in Missouri were jailed because they couldn’t pay off fines. Four years after the suit was filed, the plaintiffs are still waiting, and wondering if the deck is stacked against them.

By Topher Sanders

In January 2014, Tonya DeBerry was driving through an unincorporated area of St. Louis County, Missouri, when a police officer pulled her over for having expired license plates.

Allison Nelson in Jennings, Missouri. Her mother, Tonya DeBerry, was jailed over outstanding traffic tickets from three jurisdictions. After paying St. Louis County, she was handed over to Ferguson and Jennings, and in each, she was told she’d be released only after paying a portion of the fines.

After discovering that DeBerry, 51, had several outstanding traffic tickets from three jurisdictions, the officer handcuffed her and took her to jail.

To be released, she was told, she would have to pay hundreds of dollars in fines she owed the county, according to her account in a federal lawsuit. But after her family came up with the money, DeBerry wasn’t released from custody. Instead, she was handed over to the municipalities of Ferguson and Jennings, and in each city, she was told she would be released only after she paid a portion of the fines she owed them, according to the lawsuit.

It was as if she were being held for “ransom,” her lawyer would later say.

The Supreme Court ruled almost 50 years ago that a person can’t be jailed for not being able to pay a fine. But like so many people in Missouri, DeBerry had ended up cycling through a succession of jails for that very reason, caught up in what critics have called modern-day “debtors prisons,” used by towns to keep fines flowing into municipal coffers.

“It’s a cat-and-mouse game,” said her daughter, Allison Nelson, who has also spent time in jail for not being able to pay traffic fines.

If DeBerry and her family were exasperated by the heavy-handed collection efforts, they would learn how hard it would be to hold the authorities accountable, especially in Ferguson, even after the killing of Michael Brown later that year drew national attention to the city’s troubled criminal justice system.

The city slowly stopped jailing people for not being able to pay fines as the news media showed the victims were primarily black and the Justice Department made clear that what Ferguson had been doing was wrong. But four years after a federal class-action suit was filed against the city on behalf of thousands of people who claimed they were jailed for their inability to pay fines, the plaintiffs are still waiting for redress.

The city has sought to have the lawsuit dismissed, filing a succession of motions, arguing among other reasons that instead of suing the city, the plaintiffs should be suing the municipal division of the state court. All three of the motions have been denied by the judge, Audrey G. Fleissig, of the U.S. District Court in St. Louis, though one of the rulings was appealed and that took about a year to resolve.

Nelson flips through photocopies of traffic tickets and legal filings.

One issue has proved to be particularly frustrating to the plaintiffs: whether the city of Ferguson is even insured for a class action.

In March 2016, the lawyer representing Ferguson sent an email to a representative of the city’s insurer, saying that the scope of the lawsuit had expanded, and that concern about the case “grew” after a similar suit was settled for what was believed to be a “substantial amount of money.”

The five-sentence email concluded with the lawyer, Peter Dunne, of the St. Louis firm Pitzer Snodgrass, saying that legal action may be necessary to resolve the question of whether the city was covered for a class action.

“We believe a DJ [declaratory judgment] suit to determine coverage may be necessary,” Dunne wrote.

Three months later, the insurance trust filed a declaratory judgment suit against Ferguson in St. Louis County Circuit Court, asking a judge to find that the city did not have insurance coverage for class actions.

Dunne’s role was not publicly known until September when St. Louis Post-Dispatch columnist Tony Messenger reported Ferguson’s allegation that Dunne had violated his duty to the city. The email documenting Dunne’s discussion of a lawsuit with the insurer was first obtained by ProPublica. Dunne, one of the firm’s principals, did not respond to requests for comment. The other principals did not respond to emails or to a call to the firm’s office.

Suggesting legal action involving his own client was a breach of legal ethics, some experts said, and the revelation has only deepened the sense among the plaintiffs and their supporters that the deck is stacked.

“No matter where the citizens of Ferguson go in the legal system, justice is really hard for them to obtain,” said Vincent Southerland, executive director of New York University School of Law’s Center on Race, Inequality and the Law. “It’s another example that we have a legal system that was not built to protect and vindicate the rights of the most vulnerable among us.”

The killing of Brown by a police officer in August 2014 and the unrest that followed thrust Ferguson into the middle of a growing national debate over race and law enforcement. But for black people in Ferguson and the surrounding North County region, racial discrimination had long defined their relationship with the local police and courts.

Even as the rest of the country moved on from Ferguson, the people seeking a judgment against the city found themselves mired in the machinations of an insular legal system and an overburdened insurance carrier.

Ferguson, a city of about 21,000 people, was insured through a cooperative of 25 municipalities called the St. Louis Area Insurance Trust, commonly referred to as SLAIT.

The trust has operated largely out of the public eye. It took the persistence of Messenger, who won a Pulitzer Prize this year for his columns on “debtors prisons” in rural Missouri, to make the trust comply with open government laws.

Messenger said the rural courts ensnared whites, while in Ferguson and elsewhere in North County, it was blacks who were victimized. “But it’s the same concept,” he said. “It’s policing on the poor, it’s jurisdictions that don’t have a tax base anymore looking to the judicial system as a fundraising tool and judges allowing themselves to be tax collectors rather than purveyors of justice.”

Four years after a federal class-action suit was filed against Ferguson on behalf of thousands who claimed they were jailed for their inability to pay fines, the plaintiffs are still waiting for redress.

The trust hired Dunne to provide Ferguson’s defense of the class-action lawsuit. But his firm, Pitzer Snodgrass, was also providing the trust with legal advice on insurance coverage issues, according to a court filing by Ferguson. That set up what Ferguson said in the filing was a conflict that the city had not been made aware of.

Even if city officials wanted to settle the case, the trust claims in court filings there isn’t coverage and it won’t pay out. The insurance trust’s lawsuit will determine whether there is coverage.

Michael Downey, a law professor at Washington University in St. Louis and an expert on legal ethics, said that unless Dunne had Ferguson’s permission, Dunne should not have talked to the insurer about the possibility of a lawsuit over coverage.

“A breach of the duty of confidentiality basically to encourage a party to take action against your client is a pretty serious violation of the rules,” Downey said.

Even if Dunne thought he was conveying something that the insurer already knew, the exchange was still concerning, Downey said.

The trust, through its lawyer, declined to comment.

Michael Frisch, Georgetown University Law Center’s ethics counsel, said that, were the bar to pursue an investigation, any punishment would not be severe. A reprimand — at most, he said.

“It’s the kind of a thing that would not draw that much of a response from the bar,” Frisch said. “Lawyers tend not to get suspended for things like this.”

New York University law professor Stephen Gillers, who specializes in legal ethics, said that regardless of any punishment, Dunn’s actions are significant.

“It’s a big deal, because clients are entitled to loyalty,” he said. “If you can’t be equally loyal to both clients, then you have a conflict and you have to withdraw entirely or from one or the other client.”

For lawyers hired by insurance companies to represent policyholders, the question of who is the client was for many years unsettled ethical terrain, experts say.

Lawyers can feel a sense of obligation to the insurance companies that hire them — and that can provide a steady stream of business — said William Barker, co-author of “Professional Responsibilities of Insurance Defense Counsel.”

Barker, a Chicago lawyer with the firm Dentons, said that until the 1970s, lawyers hired by insurance companies to represent a policyholder typically thought of the company as their chief client. But a series of court decisions since then established that the lawyer owes undivided loyalty to the policyholder, and that is why the lawyer’s actions in the Ferguson case appear to be troubling, Barker said. “That’s something that the defense lawyer ought not to be doing,” he said. “The lawyer who is handling the defense ought not to be involved, certainly in advising the insurance company on coverage issues.”

Michael-John Voss, a lawyer for the ArchCity Defenders, the civil rights group that brought the lawsuit against Ferguson, expects to case to drag into 2020.

“The relief and the remedy has been a long time coming, and there’s no clear end in sight,” he said. “And it reemphasized to me the way that these larger structures are put in place to avoid accountability and to perpetuate a system of social control.”

ProPublica asked the insurance trust if it had instructed Dunne to act as he did, but the trust’s lawyer said the organization would not answer any of ProPublica’s questions because of the ongoing lawsuits.

The insurance cooperative was created in the 1980s to help small St. Louis-area municipalities share the cost of liability insurance and health care. The arrangement worked for the occasional slip-and-fall claim and other routine municipal litigation. But it has not held up well in the face of payouts to cops injured on duty and for actions by the police and the courts.

Most notably, the trust paid $1.5 million to Brown’s family in 2017 to settle a wrongful death claim against Ferguson. But that was hardly the only big hit in recent years. In 2016, a jury awarded $3 million to the family of Jason Moore, an unarmed 31-year-old man, who died after a Ferguson police officer delivered several shots from a Taser.

A state audit released in February showed the organization’s fund balance dropped to $3.8 million in 2018 from $12.2 million in 2016. Like many insurers, the trust also has its own coverage, known as reinsurance, and it turned to those carriers to help with the Moore verdict. But the companies have told the trust that they won’t cover the judgment in the Moore case because the companies allege the trust improperly notified them of the claim. The trust is suing the companies.

Dunne and his firm are no longer working on the Ferguson case. The firm was disqualified by the judge after it hired a lawyer from the ArchCity Defenders who represented one of the lawsuit’s plaintiffs in court.

De’carlon Seewood, who stepped down in March after three and a half years as Ferguson’s city manager, said resolving the lawsuit will help the community move beyond the abuses and the notoriety that came with them.

“It is important to kind of move forward and show that new face, that better face,” Seewood said this year, before he left Ferguson to become the city manager in Fairburn, Georgia, just outside Atlanta. Jeffrey Blume, Ferguson’s interim city manager, directed questions to the city’s attorney, who declined to answer.

Seewood said the city had hoped the insurance trust would take care of the settlement the way the insurer for the city of Jennings had. But Jennings was in a very different position. Its insurer was Travelers, the country’s sixth-largest property and casualty insurer. By contrast, the insurance trust is a small cooperative with dwindling funds.

“The insurance [trust] looked at the enormity of what’s being asked and they said that’s it’s outside their [coverage] of the city, and so the city finds itself fighting with its insurance company about [coverage],” Seewood said.

According to a memo written by the trust’s claims administrator, the plaintiffs originally asked for $27.5 million but during mediation in April 2016 reduced the demand to $9.5 million. That amount is what the plaintiffs believe, based on the policies, is the total coverage limit of Ferguson’s insurance.

Alexandra Lahav, a professor at the University of Connecticut School of Law and an expert in civil litigation, said a case like this typically would be resolved in about two years and said the insurance dispute was slowing the process.

“This really shouldn’t be a very complicated class action,” Lahav said.

Lisa Soronen, executive director for the State and Local Legal Center, a Washington organization that supports states and local governments in legal disputes that rise to the U.S. Supreme Court, said the dispute between the trust and Ferguson didn’t leave the city with many sound options other than fighting the case mightily.

“As a practical matter, Ferguson’s a really small city that has no money,” she said. “If there’s no insurance coverage and there’s a huge judgment, I don’t know how it would pay.”

John Rappaport, a professor at the University of Chicago Law School who has studied the impact insurance can have on police practices and policies, said insurance trusts have a reputation for being less likely than commercial insurers to settle cases involving police officers.

“The risk pools or the trusts, they see themselves as extensions of the cities themselves,” he said. “Their reluctance to settle litigation against the police would seem [to be] a kind of loyalty to their members — their cities.”

Rappaport said commercial insurers often see the issues as purely a matter of dollars and cents.

“Whereas if the city either is in a risk pool or the city represents itself, they see it as more of like a moral issue, like we have to stand up for our officers,” he said.

Even after the Ferguson suit is resolved, litigation in Missouri over “debtors prison” practices won’t be. ArchCity Defenders has lawsuits pending in six other cities, with more in the pipeline stretching beyond North County.

DeBerry, the Ferguson woman who was a named plaintiff in the Ferguson class action, was also a plaintiff in the lawsuit against neighboring Jennings, which settled for $4.8 million less than a year and a half after the suit was filed.

But the suit in Ferguson has dragged on longer than DeBerry could wait.

She died in April 2018.

“And now she will never even get a piece of this justice because she’s no longer here,” said Nelson, her daughter. “That’s sad, that’s really sad. It’s actually pathetic because it should have never come to that. It hurts.”

DeBerry died in April 2018. “And now she will never even get a piece of this justice because she’s no longer here,” Nelson said.

Republished with permission under license from ProPublica, a Pulitzer Prize-winning investigative newsroom.

Who’s More Likely to Be Audited: A Person Making $20,000 — or $400,000?

If you claim the earned income tax credit, whose average recipient makes less than $20,000 a year, you’re more likely to face IRS scrutiny than someone making twenty times as much. How a benefit for the working poor was turned against them.

by Paul Kiel and Jesse Eisinger,

When Natassia Smick, 28, filed her family’s taxes in January, she already had plans for the refund she and her husband expected to receive. Mainly, she wanted to catch up on her credit card debt. And she was pregnant with their second child, so there were plenty of extra expenses ahead.

The earned income tax credit is supposed to be a boon for low-income families like Natassia Smick’s. But, as she’s found, claiming the credit often prompts a grueling, slow-moving review by the IRS.

Since Smick, who is taking classes toward a bachelor’s degree, and her husband, a chef, together earned around $33,000 in 2017, about $2,000 of that refund would come from the earned income tax credit. It’s among the government’s largest anti-poverty programs, sending more than $60 billion every year to families like Smick’s: people who have jobs but are struggling to get by. Last year, 28 million households claimed the EITC.

Smick, who lives outside Los Angeles, thought she’d get her refund in a month or so, as she had the year before. But no refund came. Instead, she got a letter from the IRS saying it was “conducting a thorough review” of her return. She didn’t need to do anything, it said. Smick waited as patiently as she could. She called the IRS and was told to wait some more.

It wasn’t until four months later, in July, that she got her next letter. The IRS informed her that she was being audited. She had 30 days to provide “supporting documentation” for basically everything. As she understood it, she needed to prove that she and her husband had earned what they’d earned and that her child was her child.

By this point, Smick was home with her baby. She set about rounding up W-2s, paycheck stubs, bank statements and birth certificates. Proving that her 4-year-old had lived at the family’s address for most of the year, as the EITC requires, was the hardest thing, but she did her best with medical records, some papers from his day care, and whatever else she could think of.

She sent it all off and hoped for a quick resolution, but the next IRS letter quashed that hope. The IRS said it would review her response by Feb. 16, 2019 — six months away. Collectors were calling about the credit card bills. She didn’t know how she’d make it that long.

Smick couldn’t understand why this was happening. All she had done was answer the questions on TurboTax. Isn’t it rich people who get audited? “We have nothing,” she said, “and it’s just frustrating knowing that we have nothing.”

It seemed there was nothing she could do. And when she called the IRS to ask how it could possibly take so long to review her documents, she remembers being told that there was nothing they could do, either: The IRS was “extremely short staffed,” the person said.

Budget cuts have crippled the IRS over the past eight years. Enforcement staff has dropped by a third. But while the number of audits has fallen across the board, the impact has been different for the rich and poor. For wealthy taxpayers, the story has been rosy: Not only has the audit rate been cut in half, but audits now tend to be less thorough.

It’s a different story for people who receive the EITC: The audit rate has fallen less steeply and the experience of being audited has become more punishing. Because of a 2015 law, EITC recipients are now more likely to have their refund held, something that can be calamitous for someone living month-to-month.

IRS computers choose people to audit, but if those taxpayers respond, a person must review the documents. With fewer employees to do that, delays have mounted in a process that was already arduous, according to several attorneys who represent taxpayers through the Low Income Taxpayer Clinic program. It regularly takes more than a year to get a taxpayer’s refund released, they said, even for those who are represented.

“If the service doesn’t have the personnel to evaluate evidence submitted in a timely manner, then they should not be initiating the exams in the first place,” said Mandi Matlock, an attorney with Texas RioGrande Legal Aid.

Generally, the more money you make, the more likely you are to be audited. EITC recipients, whose typical annual income is under $20,000, have long been the major exception. That’s because many people claim the credit in error, and, under consistent pressure from Republicans in Congress to curtail those overpayments, the IRS has kept the audit rate higher. Meanwhile, there hasn’t been similar pressure to address more costly problem areas, like tax evasion by business owners.

The budget cuts and staff losses have made this distortion starker. The richest taxpayers are still audited at higher rates than the poorest, but the gap is closing.

“What happens is you have people at the very top being prioritized and people at the very bottom being prioritized, and everyone else is sort of squeezed out,” said John Dalrymple, who retired last year as deputy commissioner of the IRS. In 2017, EITC recipients were audited at twice the rate of taxpayers with income between $200,000 and $500,000. Only households with income above $1 million were examined at significantly higher rates.

Put another way, as the IRS has dwindled in size and capability, audits of the poor have accounted for more of what it does. Last year, the IRS audited 381,000 recipients of the EITC. That was 36 percent of all audits the IRS conducted, up from 33 percent in 2011, when the budget cuts began.

“Those struggling to make ends meet are being unfairly audited while the fortunate few dodge taxes without consequence,” Sen. Ron Wyden, D-Ore., the ranking member on the Senate Finance Committee, told ProPublica. “The IRS needs more manpower to go after tax cheats of all sizes, and working Americans need a simpler way of obtaining a tax credit they’ve earned.”

The IRS declined to answer questions about its EITC audits.

The EITC has bipartisan roots. Conceived as a “work bonus” for low-income wage earners in the 1970’s and an alternative to welfare, the program has grown over the decades with the support of Republicans and Democrats. These days, the average credit is for about $2,500, but for larger families, the amount can exceed $6,000. The Census Bureau recently estimated that the EITC and the child tax credit together boost millions of children out of poverty every year, more than any other government program.

Unlike Social Security or food stamps, the EITC has no application process. Instead, taxpayers simply claim the credit on their tax returns. Millions of people get it wrong in both directions, according to IRS estimates. About a fifth of eligible taxpayers don’t seek the EITC. And almost a quarter of the $74 billion paid out this year was issued “improperly.”

That estimate of “improper payments,” about $17 billion, is the reason the EITC is such a focus for the IRS. Some tax experts — including the Taxpayer Advocate Service, an independent office within the IRS — argue the estimate is way too high. One reason is that it is based on the outcome of audits, and low-income taxpayers are much less likely to have competent representation to dispute the IRS’ conclusions.

Regardless of the precise error rate, the IRS acknowledges the primary cause of the problem is not fraud: It is the law itself. It is too complex, too easy for someone to think themselves eligible when they are not. The same child might be a “dependent,” for example, but not a “qualifying child” under the EITC, and the IRS’ instructions for claiming the credit run to 41 pages.

“My third-year law students, they sit down and study this material, and sometimes they still don’t get it,” said Michelle Lyon Drumbl, a professor at Washington and Lee School of Law.

Since the 1990s, Republicans in Congress have focused on these improper payments as a major problem and harshly criticized the IRS for failing to stop them. In 2015, the Republican Congress passed, and President Barack Obama signed, a bill that required the IRS to hold EITC refunds until Feb. 15 each year. The purpose was to give the IRS more time to match tax returns with the corresponding W-2s to avoid misstatements of income. But it also meant people who are audited are more likely to see their refund held — instead of receiving the credit and then undergoing audit. That’s a crucial difference for low-income taxpayers.

“You expect this money during tax season and you don’t get it… It tears you down,” said Paul McCaw, a forklift operator in Rock Island, Illinois. He had refunds held for several years in a row because the IRS doubted that his niece’s three young children lived with him. For years, the family struggled. Bills piled up and eviction was a constant threat. Finally, this year, with the help of a legal aid attorney at Prairie State Legal Services, Macaw, 50, was able to convince the IRS to release the refunds.

“I was just beside myself,” he said of finally getting his refunds, adding, “I caught everything all up, and I also paid a month in advance.”

Stopping faulty refunds from going out, rather than trying to recoup them through an audit is “always the better option” because it is more effective, said Jesse Solis, a spokesperson for House Ways and Means Committee chair Kevin Brady, R-Texas. Congress should continue to look for ways to reduce improper payments, he said.

Taxpayers of all kinds cheat. And IRS studies have found that EITC recipients aren’t close to the worst offenders. For certain kinds of business income, for instance, people pay only about 37 percent of the tax they owe because they simply don’t report the income. Hundreds of billions of dollars in government revenue is lost. But people who have their own businesses are audited at about the same rate as EITC recipients.

The IRS’ disproportionate focus on stopping EITC “improper payments” is misguided, said Nina Olson, the national taxpayer advocate. “What’s the difference between an erroneous EITC dollar being sent out and a dollar attributed to unreported self-employment income not collected?” she asked. Unreported business income is “where the real money is,” she said.

When EITC cheating does occur, the culprits are usually tax preparers, said Chi Chi Wu of the National Consumer Law Center. “They know the system, they game the system and ultimately the taxpayer ends up on the hook if there’s an audit,” she said. In undercover investigations by the NCLC and the Government Accountability Office, multiple preparers advised taxpayers to file bogus EITC claims.

About 60 percent of taxpayers use a preparer, but in most states, preparers are not required to be licensed, and the IRS’ ability to oversee them is limited. After the agency launched a program to certify preparers and subject them to regular compliance checks, a federal appeals court ruled in 2014 that the IRS doesn’t have that power. Congress could pass a bill to confer such authority on the agency, but it has not done so, despite some bipartisan support for the idea.

The IRS has a difficult task in auditing taxpayers who claim the EITC. Low-income families are often complicated; they’re more likely to be multi-generational than more affluent filers, for instance, or to add or subtract household members from year to year. A study by the nonpartisan Tax Policy Center found that only about 48 percent of low-income households with children were married couples, while for other households it was 75 percent.

But advocates for taxpayers say the IRS makes the situation needlessly worse. Virtually all the EITC audits are conducted by correspondence, and the computer-generated letters are far from simple. A survey by the Taxpayer Advocate Service found that more than a quarter of EITC recipients who were audited didn’t even understand that they were under audit.

“When I first got audited, I couldn’t figure out what was going on,” said Denise Canady, 62, of West Memphis, Arkansas, who at the time was earning $8.50 an hour as a home health aide. The audit sent her on a scramble to get documents from her granddaughter’s doctor, pharmacy, hospital and school that would demonstrate that the toddler had lived at her address. “A lot of people don’t want to give you old records,” she said.

She eventually found her way to Legal Aid of Arkansas, where an attorney helped bolster her case, but, a year after her audit began, she is still awaiting the outcome.

“I pray and hope,” she said.


Republished with permission under license from ProPublica, a Pulitzer Prize-winning investigative newsroom. 

 

“Pretty Much a Failure”: HUD Inspections Pass Dangerous Apartments Filled With Rats, Roaches and Toxic Mold

The system for inspecting federally subsidized properties is failing low-income families, seniors and people with disabilities and undermining the agency’s oversight.

by Molly Parker, The Southern Illinoisan

In the winter of 2017, a toddler was rushed to the emergency room after swallowing rodent poison inside her family’s unit at the federally subsidized Clay Arsenal Renaissance Apartments in Hartford, Connecticut. Her mother had placed sticky traps throughout the house after another one of her children was bitten on the arm by a mouse, according to a local housing advocate who worked with the family.

A child peeks out the door of the apartment where she lived with her mother and two sisters in rural southern Illinois.

This August, Missouri Attorney General Josh Hawley sued the St. Louis Housing Authority and the private management company it hired to run the Clinton-Peabody Housing Complex, saying they both violated the state’s consumer protection laws by advertising that the development was habitable even though it was plagued by a pest infestation, black mold and water damage.

That same month, residents of Texas Coppertree Village Apartments in Houston filed suit against the U.S. Department of Housing and Urban Development, saying the federal government had failed to hold their landlord accountable for deplorable conditions and criminal activity at the federally subsidized complex, including rapes, aggravated assaults and robberies.

In all three cases, despite well-known, long-standing problems, the properties had passed their most-recent inspections mandated by HUD.

Apartment complexes subsidized by HUD collectively house more than 2 million low-income families around the country. Some are run by public housing authorities and others are owned by private for-profit or nonprofit landlords. By law, the owners of such complexes must pass inspections demonstrating they are decent, safe and sanitary in exchange for millions of dollars in federal money each year.

But as thousands of renters across the country have discovered, passing scores on HUD inspections often don’t match the reality of renters’ living conditions. The two-decade-old inspection system — the federal housing agency’s primary oversight tool — is failing low-income families, seniors and people with disabilities and undermining the agency’s oversight of billions of dollars in taxpayer-funded rental subsidies, an investigation by The Southern Illinoisan and ProPublica has found.

HUD has given passing inspection grades for years to dangerous buildings filled with rats and roaches, toxic mold and peeling lead-based paint, which can cause lifelong learning delays when ingested by young children. The same goes for buildings where people with disabilities have been stranded in high-rise apartments without working elevators, or where raw sewage backs up into bathtubs and utility drains. The agency has passed buildings where ceilings are caving in and the heat won’t kick on in frigid winter months as old boiler systems give out.

The failure of HUD’s inspection system has been on display in the southern Illinois towns of Cairo and East St. Louis, which have had their public housing taken over by HUD. In both towns, complexes received passing scores as decades-old buildings deteriorated.

HUD’s inspection system “is pretty much a failure,” and the agency’s staffing levels after years of budget cuts are “wholly inadequate” to assess properties, said Sara Pratt, a former senior HUD official who worked at the agency under Presidents Bill Clinton and Barack Obama.

Kate Walz, director of housing justice with the Sargent Shriver National Center on Poverty Law, a social justice and legal advocacy organization based in Chicago, said, “We just shake our heads sometimes.”

“Some owners fail an inspection and they have a great building, and some owners pass it, and they have just a horrible building,” she added. “We’re running up against this all the time.”

The McBride housing development in Cairo, Illinois’ southernmost city, was shuttered after HUD determined it was uninhabitable last year.

The consequences of these failures are made more severe by the paucity of affordable housing in communities across the country. Nearly one in five of the nation’s 43 million renters spend more than half of their income on housing, according to an April report by The Pew Charitable Trusts. With few alternatives available to families who live in deep poverty, many choose to stay where they are and endure their conditions rather than complain and risk eviction and homelessness.

That’s why it’s critical that HUD ensures the safety and stability of government-funded housing units set aside for low-income families, housing advocates say. It’s a difficult charge given that the vast majority of these apartments are decades old, and many of them have gone without routine maintenance for years.

Representatives of the Clay Arsenal Renaissance Apartments have said that they tried to fix problems there and that the property’s passing scores meant it met HUD’s standards. After a yearslong effort led by tenants, HUD ended its contract with the owner in May. The St. Louis Housing Authority did not respond to a call seeking comment, but in news reports it said that efforts have been made to improve conditions at Clinton-Peabody, including by addressing the mice problem. And after tenants of the Texas Coppertree Village Apartments filed suit against HUD, inspectors gave the building a failing score and HUD has issued two default notices to its owner. HUD’s response to the tenants’ lawsuit was due on Tuesday, but the department has sought an extension.

The Southern emailed a synopsis of its findings to a HUD spokesman several weeks ago. The agency declined to comment in detail. HUD spokesman Jereon Brown said in an email that “the perfect system hasn’t been, and probably will not be designed. That given, the agency continues to learn and we realize the challenges of a 20-year old system.”

HUD declined to make Secretary Ben Carson available for an interview, but in late October, Carson shared a two-page statement on Twitter that said he “directed a wholesale reexamination” of how the department conducts inspections. Carson wrote that the agency is exploring “immediate improvements and those refinements over the long-term.”

The letter did not elaborate on those changes or when additional details would be made public.

“We’re simply signaling that change is coming,” Brown said. “The details will be released when we’re convinced we have a system that will better serve the residents.”

HUD’s inspection system was born out of political fallout from the agency’s previous oversight failures.

“HUD has been plagued for years by scandal and mismanagement,” then-HUD Secretary Andrew Cuomo told lawmakers during a Senate hearing in 1997, announcing a reform plan, of which standardized inspections was a central feature. In the 1980s, he said, HUD was the “poster child for fraud, waste and abuse.”

“At the time, if you knew HUD at all, you knew it through its failures,” Cuomo said, citing as examples Cabrini-Green in Chicago and Pruitt-Igoe in St. Louis, large public housing complexes that have since been leveled.

Facing calls for his department’s elimination, Cuomo called for the creation of a Real Estate Assessment Center within HUD, which would largely rely on contractors to assess the financial and physical conditions of landlords managing HUD-subsidized properties.

All properties are supposed to be inspected at least once every three years, and poorer performing ones more often. HUD also has the ability to perform an inspection at other times in response to complaints by tenants or others. Scores are issued on a 100-point scale, with a 60 needed to pass. After the inspection, landlords receive a list of all life-threatening health and safety violations, and they have three days to fix those problems. If a privately owned property fails with a score below 30 or has two consecutive scores below 60, it is referred for enforcement action, which can include termination of a contract.

A broken window inside the bedroom of an apartment at the Samuel Gompers Homes, part of the East St. Louis Housing Authority.

HUD survived the 1990s, but not before Congress cut a quarter of its annual budget and ordered a massive downsizing. The agency’s workforce has been reduced by more than half since the mid-1980s, from roughly 17,000 to about 8,000.

HUD has fielded complaints for years about flaws with its inspection system, particularly with respect to its complicated scoring algorithm that struggles to tell the difference between unsafe properties and decent ones, said Mike Gantt, senior vice president of The Inspection Group, a consulting company that helps properties prepare for their inspections.

“Many people have believed these scores to be largely meaningless for nearly 20 years, and this includes many HUD officials who will say so privately,” Gantt said. “This is not a newly discovered problem. Any claim to the contrary amounts to a cover up or ignorance of historical fact.”

Through a spokesman, Cuomo, now the governor of New York, defended the creation of the inspection system in the 1990s, saying that before it, there was no uniform system for inspecting federally subsidized housing across the nation. But spokesman Tyrone Stevens added that, with the passing of two decades and a dropoff in federal funding and oversight, Cuomo believes the system needs to be reevaluated.

The system’s flaws were brought into sharp relief a few years ago, when deplorable conditions in apartment buildings owned by the nonprofit Global Ministries Foundation prompted news reports and a 2016 Senate hearing that called into question HUD’s oversight.

Over a number of years, the nonprofit and a subsidiary had purchased 60 properties for low-income residents in Alabama, Florida, Georgia, Indiana, Louisiana, New York, North Carolina and Tennessee. The nonprofit, run by an evangelical minister in Memphis, Tennessee, named Richard Hamlet, entered into contracts with HUD to house thousands of tenants in about 40 of the properties.

By 2014, Global Ministries was receiving about $40 million in federal funds annually to offset reduced rents through HUD’s project-based Section 8 program.

Internally, HUD officials were raising serious questions about the conditions at the properties, said John Gemmill, who retired from the department in 2016 as director of the agency’s Memphis office. But externally, little happened, and tenants suffered.

When Cynthia Crawford moved into Warren Apartments in Memphis in 2013, she was desperate for a place to live. For nearly four years prior, she had been homeless, bouncing between friends’ couches and shelters. Her children were in foster care, and to get them back, she had to have a home. But the conditions they endured were horrendous. “These were not just any house mice. I’m talking about rats so big we thought they were possums. A lot of ceilings were falling in on families. Stoves and fridges didn’t work. We had issues with floors falling out from under people,” Crawford said. “It was just an absolutely hopeless feeling.”

For years, the inspection scores assigned to the Memphis properties were inflated as they fell into disrepair, well before Global Ministries purchased them, said Brad Watkins, director of the Mid-South Peace and Justice Center, a civil rights organization that works with tenants. The scores began to drop only after Watkins and others raised concerns with HUD, he said.

Cynthia Crawford said she lived for years in unsafe conditions at the federally subsidized Warren Apartments in Memphis. She co-founded a tenants’ union to fight for better living conditions.

Then, in the spring of 2015, Crawford and other residents began organizing and Memphis’ local paper, The Commercial Appeal, revealed that people were living in unsafe units at Warren Apartments, one of the Global Ministries properties. At roughly the same time, Hamlet paid himself a salary of $500,000. After the story ran, HUD inspectors returned, this time issuing a failing score for Warren and Tulane apartments, which were inspected jointly. Months later, HUD moved to end a contract with Global Ministries for these two properties.

This prompted reporters and advocates in other states to start asking questions. In the spring of 2016, U.S. Sen. Marco Rubio, R-Fla., visited a troubled 400-unit apartment complex in his home state that was owned by Global Ministries. During the visit to Eureka Garden Apartments in Jacksonville, Rubio told a representative of the owner that the conditions he had witnessed were “terrifying and inexcusable,” according to news reports. Days later on the Senate floor, Rubio turned his attention to HUD. He criticized the agency for not giving the property a failing inspection score.

“I, for the life of me, don’t know how they passed any inspections because, I’m telling you, I visited and I’m not a building inspector, but you don’t have to be one to visit this building and know there is no inspection that the building should ever pass,” Rubio said.

That August, under pressure from HUD and the public over poor housing conditions, Hamlet announced plans to put all of Global Ministries’ HUD-subsidized properties up for sale.

Brown, the HUD spokesman, said that Global Ministries “hurt a lot of folks in Memphis” and that the department forced Hamlet to sell his HUD-subsidized properties. But in an interview, Hamlet said that the department had been familiar with deteriorating conditions in the properties that Global Ministries bought, as they had long been a part of HUD’s rental subsidy program under prior owners. The department also had to review his financing plans, approve the purchases and enter into contracts with the nonprofit.

The office building at the now-shuttered Warren Apartments, which was owned by Global Ministries Foundation.

In the interview, Hamlet blamed tenants for lacking basic housekeeping skills, faulted the management companies he hired to run day-to-day operations and said he was targeted by HUD officials because he’s a pastor. He defended his salary, saying a consultant told the nonprofit’s board that he was “underpaid.” “It’s clear we became the pinata of all the frustrations of the whole Section 8 program on some of these older properties,” Hamlet said.

The problems with Global Ministries prompted a broad re-examination of oversight at HUD and promises of reform.

In the last two years alone, Brown said, HUD has increased training and oversight of contractors who conduct inspections on the agency’s behalf. In 2016, HUD ordered inspectors to mark down properties for shoddy repairs such as using plywood to cover holes in drywall or tape to fix a rotting refrigerator gasket. And in 2016 and 2017, the agency decertified more than 50 contract inspectors after determining they had not properly followed protocols.

These changes had a dramatic effect on inspection scores nationally. From 2015 to 2017, the failure rate nationwide roughly tripled — from 4 percent to 13 percent for public housing complexes, and more than doubled from 2 percent to 5 percent for privately owned projects subsidized under HUD’s project-based multifamily programs. About 260 private properties with housing assistance failed, roughly one of out of every 19, as did about 430 public housing complexes, roughly one in eight properties inspected in 2017.

At the same time, the number of inspections of privately owned multifamily properties has decreased dramatically over the same period, from 8,400 in 2015 to 4,900 last year. HUD declined to answer a question about the reason for the drop.

But even after the changes HUD made to improve inspection protocols, unsafe properties continue to pass in some places. Nowhere is that more apparent than in Hartford.

In early 2017, a school family resource coordinator reached out to the Christian Activities Council, a neighborhood advocacy organization in Hartford, after a child at her school said she’d been bitten by a mouse. A community organizer with the nonprofit arranged a meeting with the child’s mother to find out more. But at the appointed time, the mother wasn’t home. Her other child had swallowed rat poison and was in the emergency room at a local hospital.

Shortly after this incident, Cori Mackey, the nonprofit’s executive director, and other advocates began knocking on doors in Hartford’s North End, a distressed neighborhood that sits a half-mile from the capital city’s downtown.

The Clay Arsenal Renaissance Apartments consist of 26 buildings, each containing six to 12 units. Most tenants did not realize that they shared a landlord, Mackey said. But after speaking about their shared concerns, the tenants decided they wanted to take on the landlord, Ah Min Holding LLC, and its managing member, Emmanuel Ku, and ultimately, HUD. A core group of six residents led the charge.

In April 2017, the Christian Activities Council reached out to HUD’s regional office in Boston to express concerns about unsafe conditions despite the property’s passing inspection scores. The following month, a construction analyst from HUD’s Boston office visited the property and found outdated kitchens, dead mice, nonfunctioning baseboard heaters and rickety outdoor decks, according to a report obtained by The Southern in a records request.

The next month, HUD issued Ah Min Holding a notice of default, giving the owner seven days to fix the most serious health and safety violations. But nothing really changed, the residents said.

Between late June and early July 2017, a HUD inspector assessed the property again. Because the department had been made aware of problems, this particular inspection was more intensive than is typical. Still, the property passed, scoring 73, just one point less than the previous year’s 74.

The property was marked down for mold and mildew, infestation and defective windows and doors inside units. But the owner compensated for those problems by posting high scores in other categories, including the exterior of the buildings and the grounds, which tenants said were manicured in the days before HUD officials arrived, while their units received little attention.

In early July, a little more than a week after the inspection, tenants held a rally and press conference where several detailed their poor living conditions and what they said was an absentee landlord. Afterward, Joseph Crisafulli, a senior HUD official from the agency’s Boston office, addressed the tenants, saying, “The stories I’ve heard about are as far away from acceptable HUD housing as I’ve heard in my 29 years at HUD.”

Before HUD ended its funding contract, the Clay Arsenal Renaissance Apartments in Hartford had passed its HUD inspections despite tenant complaints about conditions.

That same month, a rodent expert from Cornell University found that the mouse problem at Clay Arsenal defied amateur mouse traps. Because mice were living and breeding behind fridges, in walls and cabinets and in the cushions of plush furniture, he recommended an extensive and professional extermination effort to control the problem.

In September 2017, Yulissa Espinal, one of the tenants’ leaders, gave birth to a baby girl. She and her baby had to stay in the hospital for a week and then in a hotel for another while a social worker and city code enforcement officer attempted to force her landlord to rid her unit of rodents.

When Espinal returned home two weeks later, she said she found a dead mouse in the living room. It wasn’t long before the live mice returned, she said, forcing her to set traps around her baby’s crib at night. “I worried one would get into the crib and bite her,” said Espinal, a school bus driver raising four children on a limited income.

She and others continued to plead with HUD for help, while Ah Min Holding mounted a challenge to another default notice sent by the department, threatening to cancel the company’s contract. Ku’s attorney, Carl A. S. Coan III, told HUD that such a decision was “arbitrary” and “completely contrary” to the department’s enforcement regimen for a property that had passed its most recent inspection. Ku did not respond to request for comment through Coan. HUD withdrew the second default notice and instead required Ku to fix a lengthy list of problems by January 2018, a deadline the department extended numerous times.

Dismayed, the advocates and tenants kept searching for answers. They discovered what they considered an opening: Ah Min Holding had not properly obtained certificates of occupancy for its rental buildings, which require a city inspection when there is turnover of a rental unit. The city agreed. In February of this year, city officials inspected about 100 of Ah Min’s units, and nearly all of them failed.

In April, HUD once again notified Ah Min Holding that the company was in violation of its contract with the department. On May 2, the mayor of Hartford told Ku in a letter that the city would charge Ah Min $99 per violation per day until he fixed the issues. Two weeks later, a city committee voted to end Ah Min Holding’s tax abatement, which was worth about $266,000 annually.

In response to HUD’s April default notice, the property manager for Clay Arsenal said that the repairs required by HUD had been completed, and asked for more time to address the city’s code violations.

On May 31, tenants found letters taped to their door from HUD, announcing that the agency had pulled the company’s contract and would provide them assistance in relocating. HUD also sent Ku a letter stating that “in light of the conditions at the project, and your continuing failure to provide decent, safe housing,” the agency was denying his company’s request for additional time to fix problems.

After giving birth, Yulissa Espinal and her newborn baby had to sleep away from her home for two weeks last year because of rodents in her units. She said it wasn’t long before the mice returned.

Rhonda Siciliano, spokeswoman for HUD’s Boston office, said that routine inspections are only one of the agency’s oversight tools for holding landlords accountable: “Is it the primary one? Yes. Is it 100 percent foolproof? No.”

Siciliano said that as soon as problems were brought to HUD’s attention by the advocacy organization, the agency responded. But that’s the problem, said Mackey, the executive director of the nonprofit helping the tenants.

“HUD acted only because we put pressure on them, not because that’s part of their standard oversight system,” she said.

Even as HUD is making promises to further reform the inspection system, years of inflated scores assigned to unsafe and deteriorating properties has caused harm that will be hard to reverse.

Congress has made cuts to programs that pay for renovations at apartment complexes for years, and this has led to a massive backlog of repairs. In 2011, HUD published a study saying that some 1.2 million public housing units needed about $26 billion in large-scale repairs, and that the backlog would grow by more than $3 billion annually. (There has not been a more recent assessment.)

One of the most dramatic public housing oversight failures is playing out in New York City, in Cuomo’s home state, where nearly 400,000 people live in public housing. For decades, the New York City Housing Authority, the nation’s largest, managed to avoid many of the pitfalls and public relations nightmares that plagued other large cities. It was considered a success story for government-run housing. But not anymore.

This winter, thousands of tenants were without heat. The housing authority later admitted it had not properly conducted inspections for lead paint in recent years, and hundreds of children were poisoned. Units are overrun with rats and mold. In a complaint, federal prosecutors accused local officials of trying to conceal the extent of the problems and mislead HUD inspectors with actions such as turning off the water to buildings to conceal leaks and posting “Do Not Enter” signs on basement rooms. The city, which manages the housing authority, has agreed to spend more than $2 billion over a decade on renovation efforts, and to be overseen by a federal monitor under the terms of a consent decree that still must be approved by a federal judge.

Yet, records show that HUD has known about serious health and safety deficiencies inside New York City’s public housing complexes for years. Some inspection reports estimated more than 1,000 health and safety deficiencies; the properties continued to receive passing scores. On Wednesday, a judge declined to sign off on the consent decree because he said it did not go far enough to address conditions he described as “somewhat reminiscent of the biblical plagues of Egypt.” He asked both sides to come back next month with a proposal for how to proceed.

Similarly, in the town of Cairo, located in the southern Illinois region known as “Little Egypt,” residents of the Elmwood and McBride apartment complexes lived with mice, mold and heating outages that forced them to heat their homes with gas ovens. And for years, HUD gave these buildings passing grades as they fell apart.

Today, both buildings are empty.

Vines stretch up their sides. Plywood boards have been stapled over windows. Mangled, wind-whipped metal awnings hang over them. Once home to hundreds of children, it’s now eerily quiet. Before HUD moved everyone out, nearly a sixth of the population of this town at Illinois’ southernmost border lived in the two 1940s-era apartment complexes.

When HUD placed the housing authority into receivership, an agency spokesman told The Southern that HUD was “stunned … at what it saw, not just in terms of deplorable living conditions” but also “poor and absent record keeping, the staggering backlog of critical repairs.”

When HUD finally announced a plan to address the unsafe conditions in the spring of 2017, officials told residents that the buildings were too far gone to save, and that the department was no longer in the business of building public housing. Residents were provided vouchers that subsidize rent in the private market, but many had to leave Cairo because it had few rental apartments. The shuttering of Elmwood and McBride leaves few public housing options: two high-rise towers and several smaller buildings.

The McBride housing development in Cairo. HUD announced plans to shutter McBride, and the nearby Elmwood housing complex, in April 2017.

When HUD’s inspector general released a report this summer examining why the department didn’t step in sooner, faulty inspections were identified as part of the problem.

Brown, the HUD spokesman, previously told The Southern that what happened in Cairo was a “rare” oversight failure on the department’s part. Three inspectors who had performed physical inspections at the Alexander County Housing Authority between 2009 and 2016 have been decertified for performance issues.

But Jeremy Kirkland, HUD’s acting deputy inspector general, told a House subcommittee in late September, “I am absolutely certain there are others out there like Elmwood and McBride.”


Republished with permission under license from ProPublica, a Pulitzer Prize-winning investigative newsroom. 

 

 

 

 

 

 

You Don’t Earn Much and You’re Being Audited by the IRS. Now What?

By Paul Kiel,

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.

The IRS has a full rundown of potential penalties and interest charges.

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.

Taxpayers who qualify for the EITC generally qualify for free legal help through the Low-Income Taxpayer Clinic program.

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 under license from ProPublica, a Pulitzer Prize-winning investigative newsroom. 

 

 

 

Ben Carson Declared Mission Accomplished in East St. Louis — Where Public Housing Is Still a Disaster

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

Florince Harlan stands in the courtyard of the John Robinson Houses, the public housing complex where her daughter Alexis Winston was killed on Aug. 8, 2017. (William Widmer, special to ProPublica)

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.”

“Not anymore,” he boldly declared.

In the months leading up to Carson’s visit, however, HUD’s own inspectors had failed nine of East St. Louis’ 12 sprawling public housing projects, citing a wide variety of health and safety violations, according to federal records obtained by The Southern Illinoisan.

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.

Just weeks prior to Carson’s appearance, an intruder broke into 23-year-old Alexis Winston’s apartment owned by the East St. Louis Housing Authority and killed her in front of her toddler.

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?”

Downtown St. Louis, Missouri, from an apartment inside the Orr-Weathers Apartments, in East St. Louis (William Widmer, special to ProPublica)

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.

A long list of East St. Louis public officials have faced corruption charges; some have done prison time.

In 1993, a gambling riverboat opened on the city’s riverfront, providing a critical lifeline for East St. Louis’ empty coffers. But gaming revenues have been dropping for the better part of a decade across Illinois, and were never enough to revive East St. Louis.

“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.”

A basketball court near the Lansdowne Towers housing development (William Widmer, special to ProPublica)

Today, one in three East St. Louis families earn less than $15,000 a year and about 70 percent of children live below the poverty line. In 2011, the city lost its only hospital with an emergency room. In 2012, the state named a panel to oversee the troubled local school district’s budget. Currently, the city is grappling with acutely underfunded police and fire pension funds.

“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.

The John Robinson Homes, which opened in 1943 as a segregated apartment complex for black families in East St. Louis.
A boarded-up community center, no longer in use. (William Widmer, special to ProPublica)

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 kitchen ceiling of an apartment at the John Robinson Homes was damaged by water.
A resident pulls back vinyl trim to reveal a large hole filled with droppings from rodents that she said move freely through her apartment at the Samuel Gompers Homes. (William Widmer, special to ProPublica)

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.

Some residents have resorted to securing their ground-level windows with boards and nails at the John Robinson Homes. (William Widmer, special to ProPublica)

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.

HUD completed its most recent inspection of the housing project where Winston lived five days before she was killed. The inspector noticed the security problems, too.

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).

Overall, the project scored a 55 on a 100-point scale in 2017 (a 60 is needed to pass). The year prior, it scored a barely passing 61. In 2015, it scored a failing 57.

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.

The John DeShields Homes (William Widmer, special to ProPublica)

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.

Bullet holes dot a sign in the courtyard of the John Robinson Homes. (William Widmer, special to ProPublica)

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.

The towers of the Orr-Weathers Apartments (William Widmer, special to ProPublica)

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.

A disabled tenant on the fourth floor, 60-year-old Arthur Jefferson, was overwhelmed by smoke, Jackson said. Jefferson moved slowly, “inch by inch,” and collapsed in the hallway not far from his door, according to a police report. He was later pronounced dead at a nearby hospital. Police said a woman who did not live in the building entered with another tenant and set fire to a couch and table in the hallway of the fourth floor. She recently pleaded guilty to aggravated arson and involuntary manslaughter, according to Kelly, the state’s attorney.

“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.

Terrell Wren stands in his bathroom in the Orr-Weathers Apartments. (William Widmer, special to ProPublica)

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.

Lakena Harmon sits in her living room at the Samuel Gompers Homes. (William Widmer, special to ProPublica)

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.

As part of the transition back to local control, a HUD administrator was assigned to provide assistance to East St. Louis and closely monitor the housing authority’s performance for two years. The housing authority was asked to implement a plan to improve living conditions.

“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. 

Children play on a pile of tires in a courtyard at the Orr-Weathers Apartments. (William Widmer, special to ProPublica)

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.

 

 

 

Too Broke For Bankruptcy

When You Can’t Afford to Go Bankrupt

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

Trina Wright, who filed for bankruptcy in November 2016, outside her apartment in Whitehaven, a neighborhood in Memphis, Tennessee. (Andrea Morales for ProPublica)

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.

Faced with options like these, many people simply try to muddle through, often under the threat of having their wages seized by creditors.

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.

In a Chapter 7 case, attorney fees, like any other debt, are wiped out. As a result, most bankruptcy lawyers require that clients pay in full before filing. There’s ample evidence that people struggle to gather the money to do this. It’s what you’d expect in a country where nearly half of adults say that if they were hit with an emergency expense of $400, they wouldn’t have the cash on hand to cover it. Black Americans are particularly likely to have low savings, resulting in a variety of bad outcomes such as being unable to save up to file for bankruptcy.

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

Why poverty is rising faster in suburbs than in cities

 

By Scott W. Allard

In the U.S., the geography of poverty is shifting.

According to a May report from the Pew Research Center, since 2000, suburban counties have experienced sharper increases in poverty than urban or rural counties.

This is consistent with research across the U.S. over the past decade – as well as my own book, “Places in Need.”

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.

The ConversationFinally, 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.


Re-published with permission under license from The Conversation

Scott W. Allard, Professor of Social Policy, University of Washington

 

How the Bankruptcy System Is Failing Black Americans

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.


Highland Meadows, the Whitehaven apartment complex where Novasha Miller lived previously (Andrea Morales for ProPublica)

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.

Miller in her living room near a collection of her sons’ trophies (Andrea Morales for ProPublica)

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.”

Michael Baloga, a bankruptcy attorney with Long, Umsted, Jones & Kriger, outside his office in downtown Memphis. More than 90 percent of the time, the firm files under Chapter 13 for its largely black and low-income clientele. (Andrea Morales for ProPublica)

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.

Black households are particularly vulnerable to financial difficulties like these. They have less incomefewer assets, and less financial stability than white ones — all deficits with deep roots. When they are hit with financial emergencies (a cut in pay, a needed car repair), they are less likely to have the resources to withstand them. The same vulnerabilities that make black Americans more likely to file for bankruptcy make them less likely to succeed in bankruptcy.

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.

Jerome Payne, one of the few black bankruptcy attorneys in Memphis. Payne has filed more Chapter 7s on behalf of black clients than any other attorney in Memphis in recent years. (Andrea Morales for ProPublica)

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.”

A bookcase in Payne’s Memphis office. Because his clients are “people who look like me,” Payne said, “they feel more comfortable with me.” (Andrea Morales for ProPublica)

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.


See our Bankruptcy Law page for additional information