Bankruptcies on record pace across nation

Rising unemployment, mounting debt blamed

Opinions on Maryland mixed

Some experts say state will buck national trend

May 28, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Bankruptcies nationwide are on a record pace this year, propelled by rising unemployment and mounting consumer debt, but filings in Maryland could decline, experts said.

Although opinions are mixed, some experts believe Maryland will buck the national trend because unemployment is sharply lower and the state wasn't hit as hard by the recession.

"Bankruptcies will not come down very sharply this year, [but] I don't think they are going to go up," said Charles W. McMillion, chief economist at MBG Information Services, a Washington business information analysis and forecasting firm.

"Maryland just didn't have the bubble effect like everybody else. Maryland was, I think, less highly leveraged than other states," McMillion said. "Maryland is different,"

Pradeep Ganguly, chief economist in Maryland's Department of Business and Economic Development, agreed, noting that consumer confidence is high and unemployment in the state is declining.

"Probably, we have seen the worst of it," Ganguly said.

But others contend that Maryland won't be able to escape the national trend.

Bankruptcies nationwide are heading "up, up, up," said Samuel J. Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va. "Bankruptcy professionals have never been busier."

He believes Maryland will follow the country's lead. Consumer and business bankruptcy filings in Maryland totaled 35,388 last year, up 16.7 percent from the previous year, according to the ABI. But filings in the first quarter of this year were 9,147, down from 9,241 in the corresponding quarter of last year.

Nationwide, bankruptcies totaled 1.49 million last year - a record - and they are on pace to surpass that with 379,012 filed in the first quarter of this year.

Anirban Basu, director of applied economics at RESI Research & Consulting, a Towson University think tank, expects personal bankruptcy filings to reach a record in Maryland this year. "You have this perfect recipe for rising bankruptcies on the personal bankruptcy side," Basu said. "Consumers in Maryland ... have taken on a considerable amount of debt."

Consumers had access to low interest rates during the recession, and they didn't stop spending, Basu said.

"They piled debt on top of debt," he said. "Instead of pulling back, they were egged on by the availability of 0.0 percent [automobile] financing. They also enjoyed favorable credit-card interest rates and favorable mortgage rates."

The economy entered a recession in March 2001, and many economists believe that it emerged from it in the first quarter of this year.

Some fear that rising unemployment will force more families and individuals into bankruptcy. Unemployment hit 6 percent nationally last month, its highest level in nearly eight years. Maryland's unemployment, not adjusted for seasonal variations, was 5 percent in April, down from 5.2 percent in March but up from 3.5 percent in April of last year.

Consumers "continued to pull the wagon out of the ditch, that is the good news," Gerdano said. "The bad news is that same spending can add to household debt. Relatively quickly, households can be living on the edge."

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