There was a lull in statewide bankruptcy filings in September as the number of cases declined 10.5% to its lowest level in four months.
But that just could be the calm before the storm, local bankruptcy attorneys say.
The 77 cases in September were down from 86 in the year-earlier period, according to new data from U.S. Bankruptcy Court, District of Hawaii. However, the decline comes one month after bankruptcies jumped 21.8% in August for the first increase after 15 consecutive down months.
Honolulu bankruptcy attorney Blake Goodman said pressure is building for an influx of filings down the road.
“Things are all pointing toward the accumulation of teetering events that might break the debt hardship dam,” he said. “Ratcheting- up inflation, high interest rates, continued supply disruptions, bearish economic forces and even the Ukrainian war’s impact on international trade and energy costs all lead to a bleak prospect for the next few months and years ahead.”
Goodman said even though the cases went down in comparison with September 2021’s filings, the percentage downturn was the smallest downturn of the year.
“Except for the upturn in August, the 10.5% comparative downturn in September is much less than the 15% to 49% downturn from all the year’s previous months,” he said. “In other words, September’s numbers still suggest a bottom is being reached. And if you look at the third quarter as a whole, the filings for Q3 2022 equaled 265 bankruptcy filings, only five behind the numbers from Q3 2021 of 270. This also suggests that bankruptcies may trend higher as we finish up this year and head into next.”
Honolulu bankruptcy attorney Greg Dunn said he is starting to see a pickup in business.
“My phone calls for people signing up to ‘start’ their bankruptcies have increased substantially, and it is just a matter of time before we start filing these bankruptcy cases,” he said. “I’m seeing more people getting their paychecks garnished up to 25% of their pay from their creditors. People can’t afford to have their checks garnished and have to pay for their basic living expenses. Bankruptcy will stop garnishments.”
Goodman said rising rates are having an effect on his customers.
“I’m starting to notice inflation and interest rates having more of a direct impact than previously,” he said. “We’ve taken on cases recently where the debtors indicated that the high interest on their variable-rate credit cards was making it hard to even pay the minimums and that the time had come for them to just throw in the towel.”
Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism, acknowledges that the impact of rising interest rates will affect bankruptcies for those with home equity debt and credit card debt, but says it is too soon to see the effect.
“Home equity debt normally has a low rate for two to three years and then floats with the market rate,” he said. “The rise in interest rates started only a few months ago, but we will see the impact in the next few years if interest stays high.”
For now, though, he says the state’s economy is doing well.
“Our economic performance is still good with a stable labor market, strong business sales and thus decent tax revenue growth,” he said. “I believe that bankruptcy filings will not increase significantly in the next few months due to the continued recovery of our economy, especially tourism recovery.”
In September, Chapter 7 liquidation cases — the most common type of bankruptcy — fell 10.3% to 52 from 58 in the year- earlier period.
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, declined 10.7% to 25 from 28.
There were no Chapter 11 filings in September 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 September. Honolulu County filings fell to 59 from 65, Hawaii County filings slipped to five from seven and Kauai County filings dipped to three from five. Maui County filings edged up to 10 from nine.
—
SEEKING RELIEF
Bankruptcy filings in September fell from a year ago.
2022 2021 PCT. change
Chapter 7 52 58 -10.3%
Liquidation
—
Chapter 11 0 0 0%
Business reorganization
—
Chapter 13 25 28 -10.7%
Individuals with regular sources of income set up plans to pay creditors over time
Total 77 86 -10.5%
Source: U.S. Bankruptcy Court, District of Hawaii
