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In 2006, Caruso Homes was riding the national housing wave. The Crofton home builder racked up $161 million in revenue, ranking among the nation's 200 largest by Professional Builder Magazine.
That same year, Caruso was named America's Best Builder at an industry trade show for its performance in areas such as finances, operations and customer service.
But last year, as the housing market started to tank amid the credit crunch, Caruso tried to stop the bleeding by taking steps such as lowering prices. Early this year, the company laid off some employees. But the moves could not keep Caruso from joining the growing ranks of businesses in dire straits — or more precisely, bankruptcy court.
Business bankruptcy filings increased by 11 percent in Maryland during the first half of this year over the same period in 2007, according to federal court figures. The state rate hike was well below the 42 percent national rise.
The increase in bankruptcies, both business and personal, to their highest levels since federal officials implemented the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 "points to the growing strain" on companies' and individuals' budgets, said Samuel Gerdano, executive director of the Alexandria, Va., research group American Bankruptcy Institute.
The 2005 law was designed to reduce the number of bankruptcy filings and curtail abuse of the system, but it has not worked out this year, as financial pressures strain businesses and households, added Richard Gustafson, a bankruptcy lawyer with the Chicago firm of Macey & Aleman. The law has also muddied the process by introducing "more complexity and red tape to the filing process," he said.
Many companies and individuals rushed in 2005 to beat the deadline to file under the old law. Corporate bankruptcy filings in Maryland reached 760 that year, almost double the number in 2004. They dwindled to 333 in 2006 and 380 in 2007 before this year's first-half rise.
A greater share of Maryland companies in financial trouble this year are filing for the more serious Chapter 7 bankruptcy, in which a trustee liquidates the filer's assets. Chapter 11 allows companies to keep operating as they agree to a court plan to restructure and pay debts.
Some 68 percent of Maryland companies that filed for bankruptcy this year opted for Chapter 7, according to figures from the Administrative Office of the U.S. Courts. In the first half of 2007, 57 percent of bankrupt companies chose Chapter 7.
Caruso cites economic downturn
In court filings, Caruso executives, who could not be reached for comment, blamed the rise in mortgage delinquencies and the credit crunch for their Chapter 11 filing in Baltimore's federal bankruptcy court.
"Due to the wide-ranging economic downturn in credit markets and the severe financial pressures in the housing market, Caruso Homes has engaged in an ongoing and extensive effort to maintain sufficient liquidity to continue its operations," executives said. "However, Caruso Homes has been unable to resolve their liquidity crisis outside the bankruptcy forum."
Caruso, which was founded some 22 years ago with one Montgomery County lot, listed liabilities of more than $100 million and assets of less than $100 million in its bankruptcy petition.
Other Maryland companies — from Bethesda restaurant Green Papaya to Silver Spring satellite radio operator WorldSpace — have joined Caruso this year.
WorldSpace filed last month for Chapter 11 in a Wilmington, Del., court, to "engage in an orderly process" to raise money to repay debts by either a sale or recapitalization, executives said in a statement. The company listed liabilities of $2.1 billion and assets of $307.4 million.
WorldSpace has reduced its work force in Silver Spring to about 50 from 111 employees some 18 months ago.
Home builders that operate in Maryland, including WCI Communities, which had $716 million in revenue last year, have also filed for Chapter 11 protection this year. Many retailers have similarly wound up in bankruptcy court this year, including Circuit City, A Sharper Image, Linens n' Things, Levitz Furniture and Mervyn's, all of which operate in Maryland.
Some Chapter 11 reorganizations lead to mergers or purchases. Acterna Corp., a former Germantown provider of communications testing and measurement equipment to telecommunications companies, tried to make it as a privately held company after emerging from Chapter 11 in 2003. Acterna was bought by JDS Uniphase Corp. of California in 2005, but JDS has retained the Germantown office.
Criimi Mae, a former Rockville commercial mortgage company, declared Chapter 11 bankruptcy in 1998, then reorganized for a few years before merging into a Canadian company in 2006.
Then again, some companies never really emerge from bankruptcy court. AmeriDebt, a former Germantown nonprofit credit counseling agency that was once among the largest in the nation, filed for Chapter 11 bankruptcy in 2004 amid charges of fraud and bilking clients. AmeriDebt has remained tied up in a Greenbelt court as of this week, and its clients were transferred to another agency.
A call to an AmeriDebt phone number Wednesday resulted in a voice message instructing clients to contact another agency. The message said that any other information requests should be sent to a post office box in Washington, D.C.
Bankruptcy chapters
Chapter 12: Gives special debt relief to family farmers.
Chapter 13: Mostly used by small businesses run as sole proprietorships or individuals to repay all or some debts through a payment plan.