Subprime Loans and Bankruptcy:
The Memphis Experience Post-BAPCPA
Written by:
Corky Neale
RISE Foundation; Memphis, Tenn.
corky@risememphis.org
Editor?s Note: The empirical study
described in this article was funded by a
grant from the ABI Endowment Fund.
Historically, Memphis, Tenn., has
had a high rate of chapter 13
bankruptcy filings. 1 Memphis
is unusual because chapter 13 filers
have always outnumbered chapter 7
filers. For example, in the four years
immediately preceding BAPCPA (2001-
04) in the U.S. Bankruptcy Court for the
Western District of Tennessee, Memphis
Division, between 69-72 percent of the
personal bankruptcy cases filed were in
chapter 13s.
Because of the high
rate of chapter 13
filers in Memphis
and the imposition
of BAPCPA, the
RISE Foundation
(through its program
previously called
Corky Neale
the Memphis Debt
C o l l a b o r a t i v e ,
n o w c a l l e d t h e
Responsible Lending Collaborative)
sought to discern the characteristics
of bankruptcy filers in Memphis and
what, if any, impact BAPCPA would
have on the number of chapter 13
filers. The Collaborative, with the
financial support of RISE and ABI,
undertook a large and detailed survey
of bankruptcy filers in the Memphis
court to address these questions. 2 The
goal was to administer the survey to
1,000 Memphis bankruptcy filers.
Each respondent was offered a $5 gift
card to complete a 21-page survey that
was completed during the wait time
1 Not a month passes without some local media outlet or commentator
lamenting Memphis as the ?bankruptcy capital? of the nation. The
reputation evidently stems from a New York Times article that looked to
Memphis as an example of how the Bankruptcy Code would work, with
a revision to push more petitioners to file chapter 13. The article does
not cite Memphis as being the ?bankruptcy capital,? but rather states:
?In Tennessee, the relative numbers of personal filings lead the nation.?
Peter T. Kilborn, ?Mired in Debt and Seeking a Path Out,? New York
Times, April 1, 2001.
2 Critical inspiration and direction were willingly provided by Bankruptcy
Judges Jennie D. Latta and Paulette J. Delk (who was a professor of
law at the Cecil C. Humphreys School of Law, University of Memphis
when the study was conceived). Prof. Phyllis Betts, director of the
Center for Community Building and Neighborhood Action, School of
Urban Affairs and Public Policy, University of Memphis, designed the
initial survey instrument and established the study protocol. Most
importantly, the accommodation by Hon. David S. Kennedy (U.S.
Bankruptcy Court; Memphis) is gratefully acknowledged.
About the Author
Corky Neale is the director of research
for the RISE Foundation in Memphis,
Tenn. He coordinates a communitywide
collaborative of about 125
nonprofits, financial institutions and
public agencies called the Memphis
Responsible Lending Collaborative,
which addresses local financial literacy
and abusive lending issues.
filers experienced at the meeting of
creditors (341 meeting). The design of
the survey was influenced substantially
by the survey instrument developed by
Harvard Prof. Elizabeth Warren and
University of Texas research Profs.
Teresa Sullivan and Jay Westbrook in
?The Consumer Bankruptcy Project.? 3
The Memphis survey instrument
evolved to incorporate some unique
local concerns, such as the media?s
Feature
influence when choosing an attorney,
and to ascertain what actions petitioners
may have taken in advance.
Memphis has a high concentration
of high-cost lenders, and thus, a huge
number of exotic subprime mortgages
were issued in the market. The survey
sought to discern the extent to which
abusive lending practices played a role
in the pathway to bankruptcy. Survey
responses were accumulated between
June 2006 and August 2007. Of the 1,035
surveys completed, 986 were deemed
valid and substantially complete. Survey
respondents represented essentially the
same mix of chapter 13 and chapter 7
filers: 82 percent of survey respondents
filed a chapter 13 petition, as compared to
the region?s actual filings. 4 The following
summarizes the characteristics of survey
respondents and interprets key findings
3 The Consumer Bankruptcy Project is a three-part series of surveys
of bankruptcy filers that has been taken every decade since 1981.
The 1991 data led to ?The Fragile Middle Class: Americans in Debt?
(2000), written by Profs. Teresa A. Sullivan, Elizabeth Warren and
Jay Lawrence Westbrook. The Consumer Bankruptcy Project III in
2001 had a number of investigators in addition to Sullivan, Warren and
Westbrook. The 2001 data was analyzed and reported in ?The Two-
Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke?
by Elizabeth Warren and Amelia Warren Tyagi (2004).
4 In 2006, 79 percent of all bankruptcy petitioners in Memphis filed under
chapter 13; 78 percent filed chapter 13 in 2007.
related to the mortgage circumstances of
Memphis petitioners.
Key Characteristics of
Memphis Bankruptcy Filers
The City of Memphis and its host
county, Shelby County, have a majority
African American population?63
percent and 52 percent, respectively.
The county also has a comparatively
high unemployment rate (9.2 percent
in 2007), a high poverty rate and a
median household income of $43,500.
Bankruptcy survey respondents were
generally representative of the resident
population, with a couple of notable
differences. There was a much larger
proportion of African American and
women bankruptcy filers than in the
general population: 80 percent of survey
respondents were African American
and 71 percent were women residing in
Shelby County. The survey respondents
accurately reflect the demographics of
Memphis filers and represented slightly
more than 5 percent of all total cases filed
during the survey timeframe. 5
Memphis has relatively low levels
of educational attainment. In the 2007
American Community Survey from the
U.S. Census Bureau, only 22.7 percent
of those over age 25 and residing
in Shelby County had some college
education. Surprisingly, educational
attainment of filers is quite high, with
44 percent having some college and 9
percent holding postsecondary degrees.
Nearly 30 percent are high school
graduates, while 19 percent have less
than a high school diploma. However,
at the high school graduation level, the
correspondence between the survey
respondents and the general population
is approximately the same, with 31.6
percent of county residents and 29
percent of survey respondents having
a high school education. Those with
college or professional degrees who file
5 The sample of survey respondents is not necessarily a reflection
of the population of Memphis or its region. Because of the unique
demographics of the bankruptcy filers in Memphis, study results are not
a good proxy for bankruptcy characteristics elsewhere.
50 June 2009 ABI Journal