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Hawaii bankruptcies fell in 2020 despite pandemic

Hawaii bankruptcies seemed destined to rise in 2020 when the COVID- 19 pandemic sent businesses into a tailspin, employees to the unemployment website and tourism into a virtual standstill.

But state and federal financial aid came to the rescue, and the number of bankruptcy cases ended up plunging 8.6% to 1,524, according to data released last week from the U.S. Bankruptcy Court, District of Hawaii. Filings were 143 fewer than in the pre-pandemic year of 2019, and, remarkably, cases were down in nine of the 12 months over the previous year’s totals.

“I think unemployment compensation, the pandemic unemployment assistance and social programs such as food stamps, welfare assistance, rental or mortgage assistance programs as well as mortgage forbearances, the rent moratorium and people adapting to the circumstances have contributed to the reduction in bankruptcy filings,” Honolulu bankruptcy attorney Greg Dunn said. “It was a surprise for me that bankruptcy filings actually went down in 2020 from 2019.”

Dunn said he expects bankruptcy filings to increase this year since unemployment compensation benefits and the pandemic unemployment assistance will run out for most people.

“The rental, mortgage assistance and mortgage forbearance programs will probably be curtailed,” he added. “The mortgage companies may not be able to continue to offer mortgage forbearances, resulting in an increase in foreclosures.”

State chief economist Eugene Tian is not quite as pessimistic as Dunn. Tian said with more federal funds coming (at least $1.7 billion to the state and possibly double that amount), and wide distribution of the COVID- 19 vaccine by this summer, the economy will have a major return in late summer and fall this year.

“Tourism growth could recover by 80% by the end of 2021,” said Tian, who provides forecasts for the state Department of Business, Economic Development and Tourism. “Bankruptcy filings might increase in the next few months, but it will not be significant. However, a high degree of uncertainty does exist, such as the effectiveness and people’s willingness to accept the vaccine.”

Tian said he wasn’t surprised that bankruptcies declined in 2020. He attributes that primarily to the federal assistance programs in which Hawaii received more than $10.6 billion. As of December about 10.7% of Hawaii businesses were temporarily closed, he said.

“They are expecting more federal assistance coming and will try to survive through the next few months,” he said. “Significant economic recovery may start during the second half of 2021.”

Furthermore, Hawaii personal income, which was bolstered by federal and state financial relief, increased 8.2% during the first three quarters of 2020 to mark the largest growth since 1990.

”Usually, during recession years, personal income decreases and bankruptcy filings increase,” he said. “But because of the huge federal government assistance, the current recession — accompanied by the increase in personal income — led to the decrease in bankruptcy. Federal assistance helped businesses and households to survive.”

Chapter 7 liquidation filings — the most common type of bankruptcy — rose just 1.4% in 2020 to 1,152 from 1,136 in the previous year.

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, fell 29.6% to 364 from 517.

Chapter 11 filings, which are primarily for business reorganization, fell 53.8% to six from 13.

There were no Chapter 12 filings for family farmers or fishermen, compared with one in 2019.

There were two Chapter 15 filings, compared with none in the previous year. A Chapter 15 filing allows a foreign debtor to file for bankruptcy in the U.S. court system.

Bankruptcies fell in three of the four major counties last year. Honolulu County filings decreased to 1,117 from 1,238, Hawaii County filings declined to 124 from 133 and Kauai County filings fell to 61 from 75. Maui County filings edged up to 222 from 221.

SEEKING RELIEF

Bankruptcy filings in 2020 fell from a year ago.

2020 2019 PCT. CHANGE

Chapter 7 1,152 1,136 1.4%

Liquidation

Chapter 11 6 13 -53.8%

Business reorganization

Chapter 12 0 1 —

Family farmer or fishermen

Chapter 13 364 517 -29.6%

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

Chapter 15 2 0 —

Cases ancillary to foreign proceedings

Total 1,524 1,667 -8.6%

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

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