BY ANN S. KIM

MaineToday Media, Inc.

Individuals who file for bankruptcy eventually recover from their financial crisis, but it takes them a long time to make up lost financial ground, according to a new study by a University of Maine School of Law professor and an Ohio State University research scientist.

The study compared bankruptcy filers to their peers by a number of measures related to key assets and debt, income and wealth. In some categories, it took bankruptcy filers more than 20 years to reach the level of their counterparts.

One of the primary goals of bankruptcy is to provide debtors with a fresh start, said Lois Lupica, the law professor who co-authored the study with Jay Zagorsky of the Center for Human Resource Research at Ohio State University.

"For the fresh start to be meaningful, a household's financial well-being must be restored," she said.

It's not surprising that it can take many years for bankruptcy filers to catch up to their non-filing peers, Lupica said. Debtors generally are already struggling when they suffer a financial crisis - like a job loss, the break-up of a marriage or health-care debt -- that pushes them over the edge, she said.

The study, published in the current issue of the American Bankruptcy Institute Law Review, found that it took bankruptcy filers:

• 14 years to catch up in terms of home ownership and 26 years in the percentage of home equity they own

• 17 years in vehicle equity

• 13 years in wages and 14 years in total income

• 12 years in savings

• 26 years in net worth

The study comes at a time when consumer bankruptcy filings are up sharply both nationally and in the state.

Nationally, there were 822,590 filings in 2007, up 38 percent from 597,965 the year before, according to figures from the American Bankruptcy Institute. In Maine, there were 2,152 filings in 2007, up 73 percent from 1,241 last year.

If first quarter figures are any indication, this year is on track to outpace both those years. In the first three months of the year, there were 236,982 filings nationally and 547 in Maine.

It's not surprising that financial recovery takes a long time for bankruptcy filers, given that debtors' assets are liquidated to pay debts and it's difficult for them to borrow money, said John Turner, a trustee for U.S. Bankruptcy Court in Maine.

"It's a fresh start. A fresh start means they're starting with very little," he said.

Leslie Linfield, executive director of the Portland-based Institute for Financial Literacy, said it's good news that bankruptcy filers are able to catch up to their peers at all. Without bankruptcy as an option, she said, they would have been trapped in a virtual debtors prison.

"They never would have had any chance of recovery if they didn't go through bankruptcy. Think about it, all of their future earnings would have been going to debt, all of their future earnings would have been going toward paying this monster behind them," she said.

Over the past year, Linfield has noticed that it is taking people less time to file for bankruptcy after encountering financial crisis. She believes the problems in the economy have left people with fewer options.

Lupica said there is a dearth of empirical data about bankruptcy, but she and Zagorsky had access to information through a long-term study by the Center for Human Resource Research. The National Longitudinal Survey of Youth has questioned the same participants 22 times since 1979. Lupica and Zagorsky used data from the 2004 survey, before changes to federal bankruptcy law went into effect in late 2005.

Of the 7,661 respondents, who were in their mid-40s, 13.5 percent said they had declared bankruptcy. Bankruptcy filers were more likely to be divorced, female, less educated and residents of urban areas. They were also more likely to have lower incomes and larger families.

Jim Molleur, a bankruptcy lawyer in Biddeford, thought that it might take bankruptcy filers in Maine even longer to recover than filers as a whole. A lack of high-paying jobs in Maine makes it difficult to make gains in income, he said.

Molleur said his office is seeing many more bankruptcy clients these days. He's expecting to see even more in the future.

"Good-paying jobs, manufacturing or otherwise, or good white-collar jobs, are slipping away from us. And health care costs are very high and on top of that, high energy costs," he said. "I think winter bankruptcies are going to explode."