State bankruptcies plummet 31% to 15-year low

Statewide bankruptcies plunged 31.2% last month to their lowest total in 15 years as the economy remained resilient despite the end of Hawaii’s eviction moratorium.

The 86 cases in September marked the eighth month out of nine this year that filings were down from the year-­earlier period, and represented the fewest cases for any month since there were 82 filed in November 2006. It also was the fewest for any September since 2006 when there were 85 cases filed that month, according to new data released by the U.S. Bankruptcy Court, District of Hawaii. There were 125 cases filed in September 2020.

Honolulu bankruptcy attorney Greg Dunn said he’s not surprised by the low number of filings because tenants still have breathing room despite the eviction moratorium ending last month.

“Under a new Hawaii law, tenants have more time to respond to eviction notices and the right to a mediation session with their landlord,” he said. “The law also limits initial eviction filings to tenants who owe at least four months of back rent. The Mediation Center of the Pacific recently reported conducting 79 mediations with 73 resulting in written agreements allowing the tenant to remain housed. I am also seeing more mortgage companies giving homeowners loan modifications capitalizing their mortgage arrears into a new loan allowing homeowners to remain in their homes and giving homeowners deferred payments for a certain period of time.”

Honolulu bankruptcy attorney Ed Magauran, likewise, said he’s also not surprised by the low number of bankruptcies.

“First of all, it takes a landlord a while to get to court,” he said. “He or she needs to jump through some hoops before they can even commence an eviction action. Furthermore, even though the eviction moratorium has passed, many landlords and tenants still hope that they can receive some of the remaining rental assistance from both the government and charitable institutions.

“Second, the lenders and credit card companies have still not yet fully turned on their litigation taps. I think they are holding back. Even with a troubled credit card holder, they would rather get something every month. They are saying, ‘Pay what you can.’”

There have been 927 filings through the first nine months of the year, down from 1,149 at the same time in 2020. At the current pace the state will finish the year with 1,236 filings and mark the lowest annual total since there were 955 in 2006, when there were fewer cases because people had rushed to file in 2005 ahead of an October change in the Bankruptcy Code that made it more difficult and costly to seek financial protection.

“The majority of my clients are filing for bankruptcy because they are being sued by their creditors, and the creditors are garnishing up to 25% of their paychecks each time they are getting paid,” Dunn said. “Additional creditors can also get in line to garnish the debtor after one garnishment is paid. So the garnishment process could be never-ending for the debtor.

“Another reason debtors come to me is that they have exhausted all of their resources and turn to bankruptcy as another option providing them with a fresh start. It’s cheaper and quicker filing bankruptcy to blast away all or most their debts versus working out settlements and getting sued from creditors.”

Magauran said his clients who decide to file now “are truly up against the wall.”

He said there is no shortage of people in Hawaii and across the country who have unmanageable debt.

“I don’t mean folks who are living just paycheck to paycheck,” Magauran said. “I mean people who are working, even those who are fully employed, whose paychecks do not even cover their living expenses, much less having enough left over to service their debts. And to those folks I say you will need a bankruptcy, but if the wolf is not yet at the door, if Capital One isn’t suing you, then use the money to feed your family.

“Once a creditor is at the door — has filed a lawsuit and is seeking to garnish your wages — then it’s time to consider filing a bankruptcy. … More than half of the population could benefit from a bankruptcy at any given time. Folks are just afraid of it. … You never see people who dump their debt who aren’t happy about dumping it. It’s a leap to file a bankruptcy, but it provides incredible relief for those who need it.”

In August, Chapter 7 liquidation filings — the most common type of bankruptcy — dropped 39.6% to 58 from 96 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, held steady at 28 for both periods.

There were no Chapter 11 filings last month, compared with one in the year-earlier period. Chapter 11 filings are primarily for business reorganization.

Around the state, bankruptcies were mixed in the four major counties last month. Honolulu County filings dropped to 65 from 91, Maui County filings declined to nine from 23, Hawaii County filings remained at seven and Kauai County filings ticked up to five from four.

SEEKING RELIEF

Bankruptcy filings in September fell from a year ago.

2021 2020 PCT. CHANGE

Chapter 7 58 96 -39.6%

Liquidation

Chapter 11 0 1 —

Business reorganization

Chapter 13 28 28 0%

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

Total 86 125 -31.2%

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