Stormy economy forcing many to seek bankruptcy as way out

While hundreds of financially strapped Hawaii residents continue to file for bankruptcy each month, the rate of growth from a year-ago period in cases is slowing, according to new data from federal Bankruptcy Court.

The 345 filings in July marked the fifth month in a row that cases surpassed the 300 mark, according to federal Bankruptcy Court statistics. But the 28 percent rise from July 2009 was the smallest increase so far this year.

The weak economy is forcing many people to file for bankruptcy who would have never considered it an option just two years ago, said Wendy Burkholder, executive director of Consumer Credit Counseling Service of Hawaii, a nonprofit group that provides debt management and credit counseling services.

"In my 21 years of counseling, I’ve never seen people as emotionally distraught as they are now. It’s taking an enormous toll on people—not just on their financial assets, but on their relationships, their self-esteem," she said.

Burkholder said the organization is seeing many more middle-class clients compared with two years ago when most people who walked through the door were from low- or moderate-income families.

A growing number of those seeking credit counseling are either unemployed or have been forced into part-time jobs because they can’t find full-time work, she said. Those workers who accounted for about 10 percent to 12 percent of the organization’s clients two years ago now make up 50 percent of its business, according to Burkholder.

"It’s very common to see people who have been out of work for six months, and with some construction workers it’s been a year or more."

The bulk of the July bankruptcies in Hawaii—259—were Chapter 7 liquidation cases. Another 84 were filed under Chapter 13 of the federal bankruptcy code in which individuals with regular sources of income set up plans to pay creditors over time. There also were two filings for Chapter 11 bankruptcy reorganization.

Carl Bonham, University of Hawaii-Manoa associate professor of economics, said the job market will have to improve further before there will be a significant decline in bankruptcy filings.

"You would expect them to begin to taper off at some point. That person who was unemployed may have found a job, but they are in such a deep hole, they still may have to go the bankruptcy route," Bonham said.

"The economy will have to strengthen a fair amount before we see those numbers come down sharply."