Mahalo for supporting Honolulu Star-Advertiser. Enjoy this free story!
Inflation and mortgage rates are on the rise, but many debt-laden consumers have yet to take the plunge and ask the court for financial relief.
Bankruptcies, which often represent the last resort for people unable to pay their bills, declined 33% in May to mark the 11th consecutive month that cases were fewer than 100, according to new data released by the U.S. Bankruptcy Court, District of Hawaii.
The 67 cases last month were the fewest since there were 57 in February 2006. There were 100 filings in May 2021. Bankruptcy filings have now declined for 13 straight months.
Still, it just might be a matter of time before bankruptcies reverse their downward trend and start climbing. Hawaii ranked second in the country for average credit card debt with $6,535 per Credit Karma member, according to a recent survey by Credit Karma. Alaska topped the list with $7,074.
“The consumer is not in better shape today due to a decrease in the value of their retirement plans,” Honolulu bankruptcy attorney Greg Dunn said. “Consumers may have to delay retirement. Federal stimulus has ceased, most of the moratoriums have ended, and the courts are wide open. Consumer debt will skyrocket due to rising interest rates and growing inflation concerns, making it more for them to keep up paying their debts.”
Dunn said even though some consumers may be making more money —mostly due to the difficulty employers have had filling positions — their paychecks haven’t given consumers more buying power due to higher inflation.
“The current economic landscape will make it challenging for both businesses and consumers to stay afloat and the latter part of 2022 could see a rise in bankruptcy filings,” Dunn said.
He said Hawaii residents are using more credit and then consolidating debt through low-interest loans and lines of credit to pay off their debt versus filing for bankruptcy. Individuals were able to get a low interest home equity line of credit to consolidate and pay off their debt, he said.
“Therefore, the consumer is able to manage their debt versus filing for bankruptcy,” Dunn said. “The high inflation, rising interest rates and the decrease in consumers’ retirement plans has not affected most consumers yet, but will soon.”
Chapter 7 liquidation filings — the most common type of bankruptcy — dropped 43.4% to 43 last month from 76 in May 2021.
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 24.
There were no Chapter 11 filings in May or in the year-earlier period. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies fell in three of the four major counties in May. Honolulu County filings dropped to 47 from 69, Maui County filings fell to 13 from 21 and Kauai County filings dipped to one from four. Hawaii County filings remained at six.
SEEKING RELIEF
Bankruptcy filings in May fell from a year ago:
2022 2021 PCT. CHANGE
Chapter 7 43 76 -43.4%
Liquidation
Chapter 11 0 0 —
Business reorganization
Chapter 13 24 24 0.0%
Individuals with regular sources of income set up plans to pay creditors over time
Total 67 100 -33.0%
Source: U.S. Bankruptcy Court, District of Hawaii
78