Rising debt draws millions to refuge of bankruptcy

Maryland ranks high in filings despite healthy economy, low joblessness

`Middle class is being squeezed'

February 08, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

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.

"No, sir."

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.

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