Marylanders racked by the recession are flocking to federal bankruptcy court in record numbers to get a fresh start.
And as the economic slump persists, many appear to have given up hope of restructuring their debts. Instead of restructuring their finances, they're wiping the books clean through court-supervised liquidations.
Maryland ranked second in the nation in the increase in bankruptcy filings during the first quarter of 1992, the most recent statistics available from the American Bankruptcy Institute indicate. Bankruptcy filings jumped more than 32 percent in Maryland during that period, compared with a nationwide increase of 9.5 percent, the institute said.
Meanwhile, local bankruptcy lawyers say many people have become resigned to liquidating their assets to pay debts. Petitions for liquidations have increased dramatically, records supplied by the U.S. Bankruptcy Court in Baltimore show.
In 1990, Chapter 7 liquidation filings jumped 27 percent, to 3,905. In 1991, the filings increased 49 percent, to 5,828. And through June of 1992, filings have increased an additional 24 percent -- meaning that this probably will be the eighth straight year that Chapter 7 filings have risen in Baltimore.
"Certainly the economy has a lot to do with the rise in [Chapter 7] filings," said Larry Coppel, chairman of the bankruptcy group at Gordon Feinblatt Rothman Hoffberger and Hollander. Over the past several years, many consumers abused the liberal policies of credit card companies, ruining their credit, he said.
Under Chapter 7, a debtor's assets -- with a few exceptions -- are liquidated to pay creditors. Under Chapter 11, debtors stay in control of their assets while they try to come up with a plan to restructure their finances.
Mr. Coppel speculates that many people first file to restructure the finances, "hoping something magical will happen," only to file for a court-supervised liquidation in the end.
For debtors, the benefits of filing Chapter 7 is that they "get to wipe all their debts off the books," and start fresh, Mr. Coppel said. And depending on the amount of equity that a debtor has in his home, he may be able to keep it, along with other personal property.
The law also allows those filing for Chapter 7 bankruptcy to keep income from Social Security, veteran's, pension, public assistance and unemployment benefits, along with most other government benefits.
Experts say there are two categories of people who file for liquidation for employment reasons. The first: people who have been laid off and remain so, according to Howard Heneson, a Baltimore bankruptcy lawyer.
The other group: people who have found new but low-paying jobs and can't cover their bills.
Psychological reasons may also be a factor in the rising number of bankruptcy filings, said Timothy McCormack of the Shapiro & Olander law firm. He said he believes that since 1979, when the Bankruptcy Act was amended, the stigma was removed from bankruptcy. One
change: Those filing are referred to in court no longer as bankrupt, but as debtors.
Still, Alan Grochal, a lawyer with Tydings & Rosenberg, says filing for bankruptcy, is "a bitter pill to swallow . . . and can be emotional for many people."
But many more people will be forced to swallow that pill this year.
WHERE IT'S WORST
Top 10 states with largest percentage increase from a year ago, for first quarter.
Delaware.. .. .. .. .. ..38.6%
Maryland.. .. .. .. .. ..32.4
Connecticut.. .. .. .. ..27.3
New York.. .. .. .. .. ..25.5
Vermont.. .. .. .. .. .. 23.5
Hawaii.. .. .. .. .. .. .23.5
Rhode Island.. .. .. .. .22.0
California.. .. .. .. .. 20.3
West Virginia.. .. .. .. 20.2
Florida.. .. .. .. .. .. 19.9
Source: United States Bankruptcy Court for the District of Maryland, American Bankruptcy Institute.