Seated on the living room couch in her Reisterstown condominium with a stack of financial paperwork neatly arranged in a blue binder at her feet, Darlene Schapiro was poised to take the plunge into bankruptcy.
"If I don't file, they are going to take everything from me," said Schapiro, a 49-year-old widow and mother of two who has amassed about $70,000 in credit card debt over the past five years and fears she could lose her home.
Schapiro is part of a rising tide of Americans who are turning to bankruptcy to rescue their lives. Some are in debt because of illness; others have lost jobs, gotten divorced or haven't received child support payments. Many have used credit cards too liberally.
A record 1.6 million people filed for personal bankruptcy in the 12 months that ended Sept. 30. That was 7.8 percent more than in the previous year, according to the American Bankruptcy Institute, a research organization in Virginia. From 1993 through 2002, bankruptcy filings jumped 93 percent, to 1.57 million.
Maryland hasn't been immune. Despite its healthy economy and low unemployment, the state has one of the highest bankruptcy rates in the nation. Personal bankruptcies in the state more than doubled, from 14,215 in 1993 to 34,700 in 2002, one of every 63 households.
The numbers are "pretty staggering," said Wendelin Lipp, president of the Bankruptcy Bar Association for the District of Maryland and a bankruptcy attorney.
Easy credit, a sluggish economy, lackluster job growth and public policy that encourages borrowing and consumer spending have helped fuel this troubling epidemic, experts say.
The surge has made bankruptcy a huge business for lawyers and debt-counseling services, and has fueled a debate among consumer advocates and bankers, retailers and credit card issuers over a proposal before Congress that could make bankruptcy more difficult for filers to achieve and painful for them to live with.
Last month, the House passed the tough new bankruptcy bill, and its promoters are hoping to push it through the Senate and have it signed into law in coming weeks.
"It really is an astronomical problem," said Joseph Rubin, senior director of congressional affairs at the U.S. Chamber of Commerce in Washington.
He said the failure of bankrupt people to pay what they owe "severely impacts small businesses, like furniture manufacturers ... all the way up to banks and credit card companies, and it leaves the rest of consumers holding the bag for these abusers."
Consumer advocates view the bankruptcy epidemic differently.
"The fact that people can't make a middle-class living is creating the problem," said Rep. Jerrold Nadler, a New York Democrat who is fighting the legislation. Credit card companies and banks "are lending money, inviting bankruptcies."
Pain and worry
The pain of bankruptcy is visible on the faces of the people who crowd the waiting area of Room 375 in the Wilkens Building on Pratt Street in Baltimore, where Maryland bankruptcy petitions are processed.
The room's blue carpeting is well worn by the thousands who walk through its dark wooden door each year, making the Maryland district one of the busiest bankruptcy courts in the nation.
By 10:30 a.m., the waiting room is packed with about 50 people who stare in silence at the white walls and wait to be called into one of three meeting rooms where they will be peppered with probing questions about their personal finances.
"Do you own or are you buying any motor vehicles?" asks bankruptcy trustee Michael G. Rinn.
"Have you made any payments to friends, relatives or insiders in the past year?"
"Do you have any unclaimed lottery tickets?"
"Have you been honest with me today?"
Rinn speaks quickly, spending six to 10 minutes with each person to churn out 40 or 50 cases in five hours. The cases vary, but only by degree.
A well-dressed woman in her 20s who teaches at a Montessori school has $35,000 in debt, and more than half of it is on credit cards.
A woman in her 30s, who sits with her husband, speaks for the couple, saying she lost her $30,000-a-year job and makes $6 an hour as a cashier. Their credit card debt is more than $33,000; they have two cars and a pontoon boat to pay off.
Some complain that they haven't received child support or that they are getting divorced and their expenses have gotten out of control. A man with salt-and-pepper hair confesses to getting hooked on Keno and betting on horse races.
"I got into a gambling problem," he said.
"You still gambling?" Rinn asked.
Others are drowning in medical bills. A couple who run a trucking business owe hospitals and doctors about $90,000, according to bankruptcy documents.
"I was in the hospital more than I was out," the husband, a burly man with a beard, told Rinn.
Most of the people are filing because of a personal crisis, not because they are trying to abuse the system and walk away from their obligations, bankruptcy trustees and attorneys say. Many, however, saved little and used credit cards freely. The combination pushed them over the edge when they encountered an unanticipated crisis.
"There is an unforeseen event that comes into your life and it rocks your world," said David A. Rodgers, partner in Rodgers and Dickerson, a consumer bankruptcy law firm in Towson that has filed more than 22,000 personal bankruptcies since opening in 1990.
Nicholas J. Del Pizzo III, a bankruptcy attorney in Dundalk, said retirees from Bethlehem Steel Corp. are starting to trickle into his office. They lost their health care benefits, and their pensions were cut after the company filed for bankruptcy.
"A lot of these guys have long-term disabilities," Del Pizzo said. "They are paying for medication; they are paying for oxygen."
Herbert and Wanda Walker were living the American dream until Herbert Walker had to take early retirement in 2001 from Domino Sugar in Locust Point because of a knee problem.
In the good times, Herbert Walker, 64, made $100,000 running and maintaining machines that bagged sugar. The Walkers bought a 2000 Ford Explorer and a 2001 Ford Expedition. They took vacations to the Pocono Mountains in Pennsylvania and the Bahamas, and they owned shares in a wilderness camping resort in Virginia where Herbert Walker fished.
They had saved about $30,000 and had about $90,000 in a 401(k) plan.
"Things were going on beautifully," Herbert Walker said.
But the stock market plummeted, and his 401(k) was devastated, Herbert Walker said.
The Walkers, who have five children, two at home, live in a well-appointed rowhouse in West Baltimore. Now, with Herbert Walker out of a job, they live on about $24,000 a year, most of it from Social Security disability and retirement.
About a year ago, the Walkers fell two months behind on their mortgage and quickly sought bankruptcy protection.
"I panicked," said Wanda Walker, seated at her dining room table with a stack of financial documents organized in a thick, green binder. "The mortgage company sent a letter saying they were going to foreclose."
Wanda Walker, 42, tossed onto the table a stack of unfilled prescriptions for her husband's diabetes, knee pain, high blood pressure and "nerves." Herbert Walker said he had stopped going to the doctor.
"We used to have everything in the world," Herbert Walker said. "Now, we don't have nothing."
Although the recent growth in bankruptcy filings is extraordinary in historical terms, some experts say it is a natural consequence of a consumer-driven economy in which credit is easy and personal debt sets records every year.
While incomes have remained stagnant, savings have fallen and personal debt has grown, increasing the likelihood of personal financial disasters.
Household debt-service payments and financial obligations rose to 18.09 percent of disposable personal income as of June 30, up from 15.99 percent 10 years ago, according to the Federal Reserve Board.
Personal savings fell to $188.1 billion in last year's third quarter, down 26.6 percent from $256.3 billion in the third quarter of 1994, according to the Bureau of Economic Analysis.
The rise in bankruptcies has become accepted by policy-makers, banking regulators and even Federal Reserve Chairman Alan Greenspan, said Samuel J. Gerdano, executive director of the American Bankruptcy Institute.
"We are willing to accept it [rising bankruptcies] because that is just the way it is. It is a reality," Gerdano said. "Their view is that in a $9 trillion economy ... consumers do the heavy lifting. All of the policies are aimed at putting more money in people's pockets."
"There is not a lot of disposable income in the middle class anymore," said Rodgers, the bankruptcy attorney. "Jobs are being squeezed. Good jobs are being moved. The middle class is being squeezed."
Families, he said, have slipped into "financial bondage."
Like many middle-class people, Darlene Schapiro lives week to week, most of the money coming from Social Security payments she receives because she has dependent children and her husband has died.
A part-time office manager at a veterinarian's office, Schapiro lives on about $26,000 a year. She has relied on a dozen credit cards to pay for clothing, groceries and entertainment.
"It is very hard in today's society to truly live within your means," said Schapiro. "We all have champagne tastes on beer budgets."
Schapiro's husband died nine years ago. About five years ago, she began slipping into debt. Eventually, she took out a second mortgage on her Reisterstown condominium to pay off credit cards.
"I got to the point when I paid my credit cards I didn't have any money to live on," Schapiro said. "Mentally, I was trying not to face it."
She estimates that she has about $70,000 in credit card debt, and even though she hasn't used a card in about a year, she is sinking deeper into debt because of late fees and penalties.
About a month ago, a creditor froze $900 from her Social Security check that was supposed to pay the mortgage.
Bankruptcy, she said, is her only alternative.
Because she is embarrassed, Schapiro hasn't told her family or her boss that she intends to file for bankruptcy. But experts contend that the stigma has worn off for many.
John Bachman, a psychologist at United Behavioral Health in San Francisco who has written about the psychology of debt, said that people who experienced the Depression felt a deep humiliation when they couldn't repay their debts.
"The very prescription that [President Franklin D.] Roosevelt provided for us to get out of that depression was to purchase and consume," said Bachman. "Those generations that have followed have done so. The taboo is not there any longer."
Del Pizzo, the bankruptcy attorney in Dundalk, agrees, saying that people "don't feel like they are going to go to hell if they go into bankruptcy."
Bankruptcy attorneys say they are troubled by the cavalier attitude of young people who file and show little remorse.
"When I explain bankruptcy to young people, they say, 'Cool,'" said Rodgers.
Why bankruptcy filings are more common in Maryland than in other states is a mystery to experts here.
Of 94 federal judicial districts nationwide, Maryland's had the ninth-largest number of bankruptcy filings with 34,700 in 2002. California's central district, which covers the area around Los Angeles, topped the country with 81,702.
"There is really no pattern," said Gerdano of the bankruptcy institute.
What is clear is that the business of bankruptcy is booming.
Gerdano's group, made up largely of lawyers, recently added its 10,000th member and has doubled in size since 1995.
Del Pizzo works six and seven days a week, and said he wakes up in the middle of the night thinking about cases. "I am here all of the time," Del Pizzo said. "It is somewhat disheartening."
Craig W. Stewart, a bankruptcy attorney with Wilson & Stewart in Annapolis, said business has been so strong the firm recently opened a second office in Laurel and plans to open one in Frederick this spring.
Members of Congress have been trying since 1997 to stiffen bankruptcy laws to make it more difficult for people to file.
A bill that passed the House would force more people to work out payment plans and continue to pay off their debts by filing Chapter 13 bankruptcies instead of Chapter 7, which enables individuals to walk away from most debts. It also would provide that instead of being allowed to file a Chapter 7 bankruptcy every six years, a debtor would have to wait eight years.
Gerdano doesn't think the bill's chances of final passage are good this session. With the job market sagging, passing a law that makes it more difficult for people to file could be a political gaffe.
"If you had several months of unambiguously strong news, then I think that argument begins to go away," Gerdano said. "I think right now that's a deterrent to the leadership deciding that we want to make this bill a big priority."
Darlene Schapiro blames herself for her financial problems, but she also blames the credit card companies for making it so easy to fall into debt. She is grateful that she can wipe the slate clean by filing for bankruptcy and get a second chance.
"I am not going to beat myself up about it," Schapiro said. " It is a hard lesson in life learned."