Bankruptcy filings in Maryland grew at more than eight times the national average in the second quarter and are on pace to more than double since 1994, clogging the courts and underscoring how slowly the state has recovered from the recession early in the decade.

There were 9,243 bankruptcy cases filed in Maryland during the three months ended June 30, nearly 15 percent more than in the same period the year before, according to the Administrative Office of the U.S. Courts in Washington. Bankruptcy filings nationwide grew 1.7 percent during the same three months.

"The increase in the district of Maryland has for some years been significantly higher than it has been nationally," said Duncan W. Keir, a federal judge who hears bankruptcy cases in the Greenbelt division of Maryland's U.S. Bankruptcy Court. Filings are on pace to increase more than 100 percent since 1994, when 15,200 cases were filed, he said.

At the current rate, about 36,000 cases will be filed in Maryland this year. Most cases -- about 97 percent -- are consumer bankruptcies, which is in line with the national average. But the increase in business and consumer bankruptcies in Maryland confirms to one economist that the state continues a slow recovery from the recession that struck the nation in the early 1990s.

"Bankruptcies are a lagging indicator," said Paul A. Getman, a senior economist who watches the state for Regional Financial Associates in West Chester, Pa. "This is further proof that the Maryland economy has been underperforming the national average since coming out of recession in 1992 to 1993. Income growth is slow, and fewer jobs have been created, though it's been better of late."

One of every 58 households filed for bankruptcy in Maryland last year, compared with about one in 70 nationally. For the 12 months ended June 30, bankruptcy filings in Maryland accelerated at a 19.8 percent annual clip, the ninth-fastest pace among the nation's 94 federal court districts.

It is not clear why Maryland is seeing higher bankruptcy growth than many other states, though theories abound.

To understand the forces driving the higher rate of bankruptcy filings in Maryland, it's important to consider the factors behind higher filings nationally. Many of the factors are the same.

Consumer debt

Nationally, easy credit -- especially credit cards -- is most commonly blamed. Consumers say their mailboxes have been stuffed during the past several years with offers for credit cards with big credit lines and low, but temporary, "teaser" interest rates.

Credit card delinquencies have been falling, however, according the American Bankers Association. For the quarter ended March 31, the most recent figures available, 3.11 percent of bank credit card accounts were 30 days or more overdue. That's down from 3.51 percent for the first quarter of 1997 and from the near-record 3.69 percent for the second quarter of last year, but up slightly from the 3.04 percent in the final three months of last year, according to the ABA.

Many bankruptcy experts think consumer debt is a key factor in consumer bankruptcy cases: Consumers lose a job or are downsized out of a high-paying job into a lower-paying one, then use credit cards to try to maintain their lifestyle. The result is debt and disaster, the experts say.

"The way we procure our personal goods and services today, most of us use credit cards," said Keir. "Even if we pay before the end of the month, which credit card companies don't want us to do, we get our goods or services before we get the income to pay for them. There's a thinner safety net, a higher immediate pressure because of the way we use that plastic."

The safety net gives way easily with the loss of a job, a financial misfortune or an extended illness not covered by insurance, said Dick Dunnigan, director of education for the Consumer Credit Counseling Service of Southeast Maryland, a nonprofit organization that helps consumers work their way out of debt.

Money-management skills

"What we see is that most of these people just have a lack of real money-management skills," he said.

Consumers live to the edge of their incomes, meaning it takes only one unplanned event -- a divorce, a serious medical problem not covered by insurance, the sudden need for a new car -- to make bankruptcy the only alternative, said Robert Grossbart, who runs a general practice law firm on North Charles Street that does extensive consumer bankruptcy work.

A typical bankruptcy case involves a married couple with several children, a house and mortgage, and an annual income of $25,000 to $50,000, he said.

Some of the reasons for the increase in bankruptcies may be more subtle. In an economy based on consumerism, spending is good for the country to a point, said Samuel J. Gerdano, a lawyer and executive director of the American Bankruptcy Institute, an industry research group based in Alexandria, Va.

"Changes in disposable income grow hand-in-hand with the economy," Gerdano said. "Incremental spending -- and an incremental debt burden -- eventually provides the economic expansion."

Gerdano thinks overspending with credit cards has contributed to the upward spiral in bankruptcy filings. He also thinks pending legislation that would toughen the bankruptcy laws for consumers is having an impact -- particularly in Maryland.

Consumers who have spent themselves into a tight spot have a relatively easy time getting a fresh start by filing for bankruptcy and dispensing with their debts, in many cases washing away their liabilities. Many times their bankruptcy hearing is a short formality.

Location possibly factor

Bills pending before Congress would force consumers to repay 20 percent of their debts over a five-year period. Any new law wouldn't be retroactive, so Gerdano thinks the recent rise in bankruptcy filings is partly the result of lawyers advising clients considering bankruptcy to file now.

Gerdano said he thinks that might be particularly true in Maryland, Pennsylvania and the District of Columbia, where people are closer to -- and more attuned to -- events in Washington.

Maryland, Washington and two Pennsylvania districts are among the 10 federal court districts with the largest percentage increase in bankruptcy filings for the past 12 months.

Even with tougher bankruptcy regulations, the number of filings doesn't seem likely to drop soon, industry watchers say.

Corporate downsizings in Maryland have left some workers without jobs, said Grossbart, the bankruptcy lawyer. In more cases, consumers are "underemployed" -- having lost a job, they've accepted a position where their income may be half of what it was, he said. Those people may try to maintain their

former lifestyle despite the lower salary, taking a quick road to bankruptcy, he said.

If the economy sours, things could get worse.

Visa USA says the 1.34 million people who filed for personal bankruptcy last year was a record. Gerdano says enough consumers are living so close to the limit of their means that the loss of their jobs would boost filings by 300,000 to 400,000 annually, an increase of 20 percent to 30 percent.

That wouldn't help the state's backlog of cases.

"Right now," said Keir, "a person requiring a one-day trial would have to wait until sometime after April 1999" to get on the court docket.

Pub Date: 8/23/98