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Bankruptcies decline thanks to federal loan program

Federal aid programs appear to be keeping a lid on statewide bankruptcies despite the pandemic, but one of the state’s top economists says that could change after the end of this month when the Small Business Administration’s Paycheck Protection Program ends.

Hawaii bankruptcies in June fell 22.2% to 112 from the same time in 2019 and have now been down four of five months this year, according to new data released by 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 May since 2016, when there also were 112 filings. There were 144 filings in May 2019.

Through five months, state bankruptcies are off 11.2%.

The SBA’s PPP loan and the SBA’s Economic Injury Disaster Loan are the primary reason for the drop in bankruptcies, according to Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism.

Hawaii received $2.9 billion from those programs, and at least 23,416 businesses received the funds as of May 30, according to Tian.

Tian said it’s hard to predict what will happen later this year with bankruptcies since it depends on whether more federal assistance will be coming.

“Without further federal assistance and the prolonged COVID-19 pandemic, we may see a surge in unemployment as well as bankruptcies after June,” he said.

Tian said he expects the state’s economy to see some improvement with some dine-in restaurants now open, the interisland quarantine set to be lifted Tuesday and gyms, bars and theaters to reopen Friday.

“The reopening of these businesses will increase business activities and call back more workers, thus unemployment rate will decrease,” Tian said. “The economy will improve. However, because of the social distancing still a requirement and the uncertainty of the second wave of the virus, demand will still be weak, and workers will work at reduced productivity. It will take some time for our kamaaina economy to recover. It will take much longer for our tourism economy to recover.”

Tian said the shape of Hawaii’s recovery could differ from that on the mainland.

“I believe the stock market may have a V-shaped recovery, but that shape may not apply to the economy, especially for Hawaii,” he said. “In the 2009 recession it took Hawaii five years for tourism to recover. In the second-quarter economic forecast, DBEDT assumed that tourism recovery will take about the same number of years: five years. Based on the experiences of the last business cycles, bankruptcy increases during recessions. However, the aggressive federal assistance programs this time will help mitigate the bankruptcy filings.”

In May, Chapter 7 liquidation filings — the most common type of bankruptcy — rose 3.5% to 88 from 85 in the year-earlier 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 62.1% to 22 from 58. There were two Chapter 11 reorganization filings last month: one from Pacific Rim Property Service Corp. and the other from Kristine Wallerius Chung.

Bankruptcies declined in three of the four major counties. Honolulu County filings fell to 92 from 105, Hawaii County filings declined to four from nine and Maui County filings fell to 10 from 25. Kauai County filings edged up to six from five.

SEEKING RELIEF

Bankruptcy filings in May fell from a year ago.

2020 2019 PCT. CHANGE

Chapter 7 88 85 3.5%

Liquidation

Chapter 11 2 1 100%

Business reorganization

Chapter 13 22 58 -62.1%

Individuals with regular sources of income set up plans to pay creditors over time

Total 112 144 -22.2%

Source: U.S. Bankruptcy Court, District of Hawaii

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