Hawaii bankruptcies continued their downward trend in July amid further positive signs in the state’s economy.
Statewide filings declined 7.1 percent to 144 in July from 155 in the year-earlier period to mark the 52nd straight month that bankruptcies have been flat or down, according to data released Monday by U.S. Bankruptcy Court, District of Hawaii.
But there are indications that the streak soon could come to an end as the year-over-year comparisons become harder to beat due to the prolonged economic growth. The decrease in five of the seven months this year have been single-digit declines from the year-earlier period.
“I think the single-digit declines are an indication that a bottom is being reached,” Honolulu bankruptcy attorney Blake Goodman said. “These numbers equate to 1994 when there were 1,600 cases, the lowest number of bankruptcy filings (pre-law change) in 21 years. I think this year we’ll end up around 1,600 again.”
Through the first seven months of this year, there have been 946 filings, an average of 135 a month. At that pace the state is on track to see about 1,620 filings this year.
Goodman said the low number of filings in 2006 (955) and 2007 (1,381) were an anomaly because the bankruptcy law was changed in October 2005 to make filings more costly and difficult. The number spiked that year to 4,481 because people rushed to file before the law changed, and subsequently there weren’t that many filings the following two years.
He said activity has been increasing in his office over the past year.
“I’m seeing more and more people coming into my office now to file bankruptcy because they lost their job or are having trouble finding another one,” Goodman said. “It’s the most people I’ve had in a year or so.”
Still, the economy has been resilient with the state’s unemployment rate among one of the lowest in the country and the number of people employed at an all-time high for the state. Hawaii’s 4.0 percent unemployment rate in June matched December’s level. The last time it fell below 4.0 percent was 3.8 percent in May 2008. In addition, the number of people employed rose to an all-time high in June at 648,849.
Last month, Chapter 7 liquidation — the most common type of bankruptcy — inched up 0.9 percent to 109 from 108. Chapter 13 filings, which allow individuals with regular sources of income to set up plans to pay creditors over time, fell 23.9 percent to 35 from 46. There were no Chapter 11 filings, which allow businesses to reorganize, in July compared with one in the year-ago period.
Statewide, bankruptcies fell in two of the four counties last month. Honolulu County bankruptcies declined to 94 from 105, and in Hawaii County they slipped to 17 from 18. Maui County filings remained steady at 24 while Kauai County filings ticked up to nine from eight.
Even though the economy appears strong now, Goodman said two main drivers of Hawaii’s growth could dry up in the next couple of years.
“The rail project and the high-building projects are really driving the economy, and real estate industry professionals have indicated that commercial and retail real estate are performing on a very flat level in 2015, meaning that there could be a significant turn in the economic future in Hawaii once the large condominium projects are finished and/or the rail is completed,” he said.
That could reverse the downward trend of bankruptcies, he added.
“The decline in bankruptcies are getting slower, the real drivers in the economy are set to expire in the near future and this could have an impact on the bankruptcy filings in the next couple of years,” Goodman said.
He said he’s also seeing a parallel now with the Chinese snapping up Hawaii real estate and the previous Japanese real estate bubble in the islands.
“The thing that really thrust the economy forward in the mid-’90s was the Japanese visitor index and their acquisition of Hawaii real estate,” Goodman said. “This is analogously similar to the influx of Chinese tourism and residential real estate purchases in Hawaii from the Chinese investors. As weakness continues to occur in China, those sources of capital may also have a profound effect on the residential real estate market in the foreclosure and bankruptcy filings.”
