Hawaii bankruptcies on downward trend

Statewide bankruptcies declined in July for the 15th straight month as Hawaii’s economy continued showing signs it is getting healthier.

The 82 cases in July were down 15.5% from 97 in the year-earlier period and marked the 13th consecutive month that there were fewer than 100 filings, according to data released Monday by the U.S. Bankruptcy Court, District of Hawaii.

But Honolulu bankruptcy attorney Greg Dunn says prosperity for many Hawaii residents will be short-lived because a lot of his clients are living paycheck to paycheck.

“Many of my clients are making more money by working two to three jobs to make ends meet,” he said via email. “The money they are making gets eaten away due to inflation and higher cost of living. When they can’t continue to work more than one job, they turn to using their credit cards and take out loans to cover expenses.”

He said as inflation continues to rise, the declining bankruptcy trend will reverse when consumers exhaust all of their savings and credit resources and have no other option but to turn to bankruptcy.

“I see this as the calm before the storm,” he said. “Most consumers are still managing their debts and are avoiding bankruptcy. Bankruptcies fell because consumers are making more money in their paychecks and are able to handle their debt issues. But, they are spending more on housing, food, energy and fuel. At the end of the day, the consumer is spending more and saving less. Consumers were taking advantage of the low interest rates in the past by taking out home equity lines of credit and low-interest personal loans to pay off their debts to avoid filing bankruptcy. As inflation continues to rise and interest rates continue to escalate, it will no longer be affordable to the consumer to consolidate their debts to pay it down, and they will turn to bankruptcy as an option.”

Honolulu bankruptcy attorney Blake Goodman said he’s befuddled that cases have not been rising.

“It is all a mystery in a very mysterious post-pandemic (sort of) world,” he said via email. “All indicators are that bankruptcies should be on the rise after the collection moratoriums on residential real estate and evictions expired last September, almost a year ago. They should have returned to at least normal, non-dropping levels, after the unemployment assistance and pandemic protection business subsidy loans ran out as well, almost 12 months ago.”

Goodman said Hawaii’s low unemployment rate may be an indication as to why there have been so few bankruptcies.

“The only indicator which does historically bear a strong relationship with bankruptcy volume is the unemployment level in Hawaii,” he said. “The unemployment rate is very low right now and the two graphs typically dovetail. With a recession looming, if not already here, the number of bankruptcies in the state should begin an upward climb from the 32-year low that this year’s numbers represent.”

In July’s filings, Chapter 7 liquidation cases — the most common type of bankruptcy — dropped 27.1% to 51 from 70 in July 2021.

Chapter 13 filings, which allow people with regular sources of income to set up plans to make installment payments to creditors over three to five years, edged up 7.4% to 29 from 27.

There were two Chapter 11 filings in July. One was by SDB Enterprise LLC, which does business as Bourbon Street Restaurant and Bar at 1055 Alakea St. The other was by Honolulu-based Royal Hawaiian Water Co. Ltd., which does business as Hawaiian Isles Water Co. There were no Chapter 11 filings 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 July. Hono­lulu County filings dropped to 60 from 71, Hawaii County filings dipped to seven from eight and Maui County filings fell to 11 from 17. Kauai County filings rose to four from one.

SEEKING RELIEF

Bankruptcy filings in July fell from a year ago.

2022 2021 PCT. CHANGE

Chapter 7 51 70 -27.1%

Liquidation

Chapter 11 2 0 —

Business reorganization

Chapter 13 29 27 7.4%

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

Total 82 97 -15.5%

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