Statewide bankruptcies flattened out in February

Hawaii bankruptcies leveled out in February after a torrid first month of the year as the state economy continued to show signs of wavering.

There were 107 cases filed in February — one less than the year-earlier period — to mark the lowest total for the month in 14 years, according to data released Friday by the U.S. Bankruptcy Court, District of Hawaii. The number of bankruptcies followed a busy January that saw 149 filings, the highest for that month in seven years. Through two months there have been 256 filings, 20.8 percent higher than the same period a year ago.

The University of Hawaii Economic Research Organization said in a report Friday that it had turned pessimistic on the state economy after previously forecasting modest growth.

But Honolulu bankruptcy attorney Ed Magauran said he considers bankruptcy filings only to be “loosely related” to the state of the economy and are more a result of people not being able to manage their expenses.

“The reason most people file bankruptcy when they do is that they have known for months or years that they cannot pay off their debts,” Magauran said. “They ignore that fact until they can no longer ignore it (and) they are forced to look at it squarely because they are sued or garnished or levied or seriously threatened with that type of activity. So when folks file, it is dictated not by their then financial situation, but primarily dictated by outside forces which have brought the matter to a head which can no longer be ignored.”

He said that even though Hawaii residents overall are seeing a slight increase in their wages, as reflected by rising median income, it is not enough to fix their debt problems.

“The majority are struggling to pay their living expenses and to just service their debts,” he said. “That hasn’t changed at all. As such, I don’t believe that the number of filings is a good indicator of the state of the economy.”

In 2018 state bankruptcy filings jumped 10.2 percent to 1,490, the highest level in three years. The surge in filings ended a streak of seven straight years of declining bankruptcies for the state. The 107 cases filed in February were the lowest for that month since 2006, when there were 57 cases filed. That number was artificially low that year because the preceding October there was a rush ahead of a new bankruptcy law that made it more costly and time-consuming to file for financial protection.

Magauran said he expects the number of cases to increase again this year with 1,500 to 1,600 being filed.

“Part of that increase is that folks are getting deeper in debt simply because there’s more of it,” he said. “We just hit another all-time high in household debt — $13.5 trillion — a 21 percent increase since 2013 per the New York Fed.”

Magauran said those suffering in debt need to get over the perception that filing for bankruptcy is the worst thing they can do.

“For the folks who need it, it is a godsend,” he said. “I cannot adequately express the relief that bankruptcy brings. Indeed when a case is filed, the court issues an ‘order for relief.’ Think about that. It gives exactly what it says: relief from debt collection. In over 20 years I have never seen a client who is not relieved to be free of their debt. Most folks who file should have done so months or years earlier. They needlessly endured too many sleepless nights.”

In February there were 74 Chapter 7 liquidation filings, one less than the year-earlier period. Chapter 7 is the most common type of bankruptcy.

Chapter 13 filings, which allow individuals with regular sources of income to set up plans to make installment payments to creditors over three to five years, remained the same as the previous February at 32.

There was one Chapter 11 case last month as well as in February 2018. Chapter 11 filings typically involve business reorganization. Last month’s filing was by Hawaiian Ebbtide Hotel in Waikiki, while The Filipino Community Center filed in February 2018.

Bankruptcy filings were mixed in the four major counties from the year-earlier period. Honolulu filings rose to 83 from 79, and Kauai County filings increased to five from two. Hawaii County filings fell to four from 11, and Maui County filings dipped to 15 from 16.