Federal loan programs to small businesses may be temporarily curbing an expected increase in Hawaii bankruptcies.
Even with a quarter-million residents out of work and scores of businesses shut down due to the COVID-19 pandemic, statewide bankruptcy filings in April fell for the third time in four months and declined to their lowest level in more than a year.
The 114 bankruptcies last month represented a 26.9% decline from 156 reported in April 2019, according to data released Friday from the U.S. Bankruptcy Court, District of Hawaii. It was the fewest number of filings in any month since 107 in February 2019 and the lowest total for any April since 2017, when there were 94 filings.
One of Hawaii’s top economists attributes the decrease to the availability of federal financial relief and a change in Bankruptcy Court case procedures.
“I believe the decrease in bankruptcy filings in April was mainly due to the federal small business loan programs such as the SBA’s Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL),” said Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism. “Qualifications are easier and the (monetary) amount is decent. Also, the Bankruptcy Court changed hearings from in person to teleconferencing, and that also may have impacted the number of filings.”
Still, with Hawaii mired in a recession, it may be just a matter of time before the number of bankruptcy filings picks up. Tian said filings could increase toward the end of this year and in 2021 based on what transpired in the Great Recession in 2009.
“The COVID-19 is causing a recession in Hawaii since tourism industry has been in halt and the stay-home restrictions also shut down many business activities for local people such as restaurant and retails,” Tian said. “Bankruptcy filings are usually higher during recession years. For example, Hawaii had nearly 4,000 bankruptcy filings in 2010, one year after the Great Recession. Businesses usually wait for a few months or a year before they file for bankruptcy.”
Hawaii tourism contributes about 17% of the state’s economy, and Tian said the magnitude of that virus-induced slowdown will be reflected when DBEDT releases its second-quarter economic forecast around May 22.
“With almost zero tourism in April and possibly in May and June, it is unlikely tourism will be fully recovered by the end of the year,” Tian said. “Our economic growth rate may be worse than we experienced in 2009, which was 3.6%.”
In April, Chapter 7 liquidation filings — the most common type of bankruptcy — declined 25.2% to 77 from 103 in the 2019 period. 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, plunged 30.2% to 37 from 53. There were no Chapter 11 reorganization filings last month or in the year-earlier period. Chapter 11 files are typically used for business reorganizations.
Bankruptcies dropped in all four major counties. Honolulu County filings fell to 98 from 131, Hawaii County filings declined to four from seven, Maui County filings dipped to 10 from 11 and Kauai County filings fell to two from seven.
Bankruptcy filings in April fell from a year ago.
2020 2019 PCT. CHANGE
Chapter 7 77 103 -25.2%
Chapter 11 0 0 —
Chapter 13 37 53 -30.2%
Individuals with regular sources of income set up plans to pay creditors over time
Total 114 156 -26.9%
Source: U.S. Bankruptcy Court, District of Hawaii