For Jerry Lamont Cox, who earns $9,500 a year as a department store receiving clerk, the first step toward financial disaster began with a "Young Modern" account at J.C. Penney. He was 18 years old.

Then it was Montgomery Wards, Sears, Central Charge, VISA and Master Charge, a new wardrobe, a stereo, furniture, travel and fine food. Cox borrowed from Household Finance, Colony Credit and then Finance America, which loaned him the money to pay off his credit card bills.He continued to buy with plastic.

Four years later, Jerry Cox was drowning in $7,700 worth of debts and was being tormented by his creditors. So, at the age of 22, Cox hired a lawyer and went to U.S. Bankruptcy Court in Washington to declare that he was overcome by his bills.

His lawyer cost $400, which Cox paid in $100 installments. A bankruptcy judge wiped out Cox's debts and Cox, chopping up his credit cards, vowed to stick to cash.

Hard times come sooner these days for many people because of persistent inflation. But even though prices are high and money is tight, credit is still easy. The American dream lives on through time payments and installment plans. And, inevitably, when some consumers find they are being strangled by their financial obligations, bankruptcy becomes their court of last resort.

Locally, bankruptcy cases have been increasing. According to the administrative office of the U.S. courts, 249 bankruptcy cases were filed in Washington in the 12-month period ending last June 30 -- a 13 percent increase over the previous year. A total of 4,878 cases were filed during that same period in Alexandria, Richmond and Norfolk, Va., and 2,151 in Maryland -- increases of 20 and 19 percent respectively for the same period.

Nationally, the number of bankruptcy filings has decreased since 1975, when the economy was at its worst this decade, from a high of 254,000 cases to 226,000 in 1979.

Court records in Washington show that the typical bankrupt consumer has piled up card bills and finance company loans to the point of no return from debt. Outstanding bills range from $5,000 to $12,000. Bankruptcy petitions were filed by single mothers, a private investigator, a collection agent for the D.C. Department of Human Resources, a piano technician, and a schoolteacher, among others.

Credit abuse is the biggest cause of bankruptcy.

"People are led to believe that they are going to get a free lunch," said Washington bankruptcy lawyer George F. Bason. "All you need is a Master Charge and you are a master."

Bankruptcy lawyers expect the numbers to increase again shortly. One reason is the recurring slide in the economy; the other is a major overhaul of federal bankruptcy laws, effective Oct. 1, which will make them lean more toward debtors than before.

"My God, you're going to see a field day" of filings once the law is changed, said Lee A. Cowan, a bankruptcy lawyer in Washington for more than 40 years.

For consumers, the major impact of the new federal Bankruptcy Reform Act is a generous increase in the dollar amount of personal property that would be exempt from attachment to pay off debts. In the District, for example, a debtor can exempt $300 in furniture and an additional $300 in clothing now. Because the exemptions are so low -- a reflection of an out-of-date law -- debtors grossly underestimate the value of their property in bankruptcy petitions.

The new federal law exempts up to $7,500 equity in a home ($15,000 if the residence is owned jointly by a husband and wife), up to $1,200 for a car (now $500 in the District and only for cars used for business), $500 in jewelry and household goods and clothing valued at less than $200 each. Apartment dwellers cane take a $7,500 homeowner exemption, plus an additional $400 blanket exemption, and apply the total to any property.

The Bankruptcy Reform Act also puts stiff restrictions on creditors, such as small loan companies, who often try to get debtors to pay an old debt rather than have the debt discharged in bankruptcy.

Under the new rules, the court will have to approve any agreement to repay debts and the debtor will have 30 days to think over his decision before it becomes final.

The consumer credit industry argues that the new pro-debtor law will result in an increase in consumer bankruptcies.

"We look at the changes in bankruptcy as really a reallocation of who's going to bear the cost of consumer credit," said Vernon Evans, assistant general counsel at the National Consumer Finance Association. The association represents 700 consumer finance companies and cash lenders.

"If something is written off, it's going to be . . . paid by other consumers," Evans said. He said, for example, that small loan interest rates could increase or marginal borrowers might be denied credit.

The same month that Jerry Cox went to court, a D.C. police officer and his wife who together earned more than $33,000 in 1977, went into bankruptcy. They were more than $13,000 in debt. Like Cox, this couple's obligations were erased in court. Their lawyer, however, worked for the Consumer Help Bankruptcy Clinic at George Washington University Law School. His fee was $57.

The clinic, established in June 1978 with $15,000 from the D.C. Bar, is set up to help low- and middle-income families who need to declare bankruptcy, but who can't afford a lawyer at the usual rates to handle the paperwork, said Richard C. Wills, the clinic's director.

Wills said the average private lawyer in Washington will charge between $400 and $500 to file a simple, uncontested bankruptcy for a consumer.

Wills said the couple's case was an unusual one for the clinic, which routinely limits its bankruptcy work to clients who earn under $12,000.

In most cases, he said, the lawyers want the fees in advance.

"If these people are in such trouble (financially) how are they going to get (the fee) up front?"

Bason, a bankruptcy attorney in private practice in Washington, said he generally charges about $400 per consumer bankruptcy case, which includes the cost of advice and counseling, review of the client's financial situation and Bason's appearance in court at the first meeting of the client's creditors.

Richard C. Pettis Jr., a generator operator for the Potomac Electric Power Company, said he borrowed money from friends to pay his lawyer, Dorsey Evans of Washington, $350 to file bankruptcy, plus a $50 filing fee.

"He wanted all the money up front before he would even draw up the papers. So I really had to hustle to get the money together," said Pettis, who was referred to Evans by a friend who also had declared bankruptcy.

"I was in a very bad financial bind," Pettis said in a telephone interview. "I had been out sick and I needed some time to get myself together."

Pettis, who in court papers listed close to $6,000 in debts, also said he was receiving telephone calls "day in and day out" from hi creditors.

"I called and explained it. First they said okay we can understand that and then someone would call and go through the same thing on the same bill," Pettis said.

Too often, bankruptcy is seen as an easy out for "slackers and deadbeats" who rack up debts only to have them vanish in a bankruptcy courtroom, Wills and other lawyers said.

But, Wills said, "You have a right to go into bankruptcy. It's nothing sneaky or underhanded."

"People do it just like they get divorced. It doesn't faze them at all," said Berkeley Wright, the chief of the bankruptcy division in the administrative office of the U.S. Courts. And a declaration of bankruptcy does not necessarily rule out a consumer's access to credit.

"A lot of creditors try to persuade you (debtors) beforehand that it's really going to destroy your credit rating," said Bason. But, while bankruptcy is a count against a consumer, "it doesn't mean he can't get credit." Since bankruptcy can be declared only once every six years, some creditors might think debtors are sounder risks after they have gone to court.

"We look at it (a bankruptcy case)," said Joseph Galluici, vice president and comptroller for Woodward and Lothrop. "It's not a simple yes-or-no decision.

Gallucci said store figures show that bankruptcies by customers increased by 40 percent for the first six months of 179 over the same period last year. He said, however, that bankrupticies do not represent a major portion of the store's write-offs for bad debts, many of which pile up when people just don't pay their bills. Bankruptcies are increasing at a faster rate than total write-offs, however, Gallucci said.

Judge Roger M. Whelan, who has presided over U.S. Bankruptcy Court in Washington since 1972, said he sees little abuse of the system. "Most people are basically honest," Whelan said in an interview, and they need to take advantage of the bankruptcy laws.

"Debtors are entitled to a fresh start," he said. When financial conditions reach the extreme -- even if the cause is simply the debtor's irresponsibility -- the legislators theorize that it is better to allow the debtor to wipe the slate clean rather than perpetuate the struggle with creditors.

"It's not something I would advise any client to go into lightly, but it certainly offers a good out," said Joseph C. Paradiso, a staff attorney with Neighborhood Legal Services.

"What is your alternative in a situation when creditors are houding you and an individual has (court) judgments against them?" Paradiso asked.

Lawyers say, and court records show, that besides credit abuse, bad habits and bad luck also force consumers into bankruptcy court. For example, a 19-year-old secretary with a weakness for clothes tallied up $3,000 in bills to six creditors; a medical student with more than $24,000 in tuition bills quit school; a gambler who couldn't hold on to any money and an alcoholic ran up expensive restaurant bills and left them unpaid; a young dentist tried, and failed, to set up his own practice and then owed $81,000 for rental of office equipment; and a man with $12,000 in medical bills had an estranged wife who cancelled him from the family's insurance policy.

The federal bankruptcy system, established in 1898, underwent its last overhaul 40 years ago, and the existing laws reflect lifestyles that are long out of date. In Washington, for example, the law still reads that certain personal property such as "one horse or mule; one cart, wagon or dray and harness" can be exempt from sale or attachment to held defray debts.

Reasonable personal property exemptions -- which allow debtors to keep some portion of their belongings after declaration of bankruptcy -- are considered essential if a debtor is going to have a genuine chance to make a fresh start, bankruptcy lawyers said. The individual states decides whether debtors will have the option to claim either state or federal exemptions.

California, for example, has a generous list of exemptions, compared to the federal system, but the District's is "a good deal more stingy," said Professor Frank Kennedy of the University of Michigan. Kennedy was executive director of the Commission on Bankruptcy Laws, which was set up by Congress in the early 1970s to restructure the federal bankruptcy system.

One side-effect of the new law may be a kind of shopping in which debtors move around in search of the state with the most attractive exemption laws, Whelan said. For example, while the District will allow debtors to claim the liberal federal exemptions, the Virginia legislature has voted to maintain its limited state ex-exemption laws. A Virginia resident approaching bankruptcy who wants to do the most to protect his personal property, Whelan said, might then establish residency in Washington and go to bankruptcy court here. CAPTION: Picture 1, JERRY LAMONT COX . . . made $9,500, owed $7,700; Picture 2, RICHARD WILLS . . . Consumer Help Bankruptcy Clinic Picture, Donald McHenry, center, new U.S. ambassador to the United Nations, is flanked by President Carter and Andrew Young, his predecessor, at yesterday's swearing-in ceremony at the White House. AP