Despite signs that an economic recovery has begun, Maryland residents and businesses are filing for bankruptcy protection at a record-breaking rate.
In U.S. District Court in Baltimore, nearly twice as many bank
ruptcy petitions were filed during the first six months of the year, compared with the number of cases filed during the same period in 1990.
By June 30, 4,242 bankruptcy petitions were filed, compared with 2,721 for the same period last year. In Baltimore, the total number in 1990 was 5,757, court officials said.
Additionally, procedural changes in the federal bankruptcy code prompted an avalanche of filings on Wednesday, the last day before the changes took effect, according to Michael Kostishak, clerk for U.S. Bankruptcy Court for the District of Maryland.
In Baltimore, 80 bankruptcy petitions were filed Wednesday, the highest number in one day since 1979, when revisions in the federal law last went into effect. In U.S. District Court in Rockville, 73 petitions were filed, also the most in one day since 1979. In Maryland there are two federal courts where bankruptcy petitions can be filed.
However lawyers who handle bankruptcy cases say it is the effects of the year-long recession, not just procedural changes, that have driven a record number of Maryland residents and businesses to seek protection from creditors.
Kostishak declined to say why the courts have been deluged with debtors, but he was willing to make projections based on the the volume of filings to date. He estimates the courts will process 14,700 petitions by the end of the year, which would be an increase of 44 percent from the 10,219 filings in 1990.
The total number of cases filed in both Baltimore and Rockville for the first half of this year is nearly as great as for all of 1989, when Maryland had 8,352 cases.
"No matter what the economists say, people are still feeling the effects of the recession," said Mark A. Cohn, a Baltimore attorney whose practice includes bankruptcy.
Cohn said his bankruptcy practice is up 65 percent from last year.
"I think the number one reason for bankruptcy is still people losing their jobs or people making less money," he said.
"Literally people are running into my office asking for help to file for bankruptcy to save their house from foreclosure proceedings. It's just really sad to see," he said.
When people or companies can't pay their debt, they can seek court protection in several ways. Under Chapter 7 of the Federal Bankruptcy Act, assets are liquidated and the proceeds distributed among creditors. Under Chapter 11, a business is allowed to operate under court supervision to pay off creditors. Under Chapter 13, which generally applies to individuals, the court approves a repayment schedule that often involves all the debtor's disposable income.
In the first six months of the year, 2,924 Chapter 7 liquation petitions were filed in Baltimore. That was a 60.3 percent increase over last year's 1,824.
The number of Chapter 11 reorganizations was up 46 percent. In Baltimore, during the first six months of this year, 143 businesses filed for Chapter 11 compared with 98 for the same period in 1990.
The number of Chapter 13 filings by individuals jumped 47.2 percent, to 1,175 cases, compared with 798 in 1990.
"I don't think the recession has bottomed out," said Howard A. Rubenstein, a Baltimore lawyer whose practice includes bankruptcy. "There are still a lot of troubled real estate ventures. There are still a lot more that have not filed yet."