Hawaii bankruptcies continue to defy the odds and keep dropping even though most economists predict that the country is headed toward a recession early next year.
The number of cases filed in October fell 14.9% to 74 from 87 in the year-earlier period to mark the ninth time in 10 months this year that bankruptcies have declined, according to new data from U.S. Bankruptcy Court, District of Hawaii.
Bankruptcy cases have now fallen 17 times in the past 18 months.
“Bankruptcy filings have dropped because people continue to live off their credit and savings to avoid bankruptcy, but their credit and savings will only go so far in view of higher interest rates and higher inflation,” Honolulu bankruptcy attorney Greg Dunn said. “The Federal Reserve continues raising interest rates and the cost of credit continues to go up. With higher inflation, people are running out of money to pay their debts and will soon turn to bankruptcy as a solution to get rid of their debt and get a fresh start.”
Honolulu bankruptcy attorney Ed Magauran said more people should file for financial relief but are scared from doing so.
“Bankruptcy filings are not a good indicator of the current or future state of our economy,” he said. “For them to be a good indicator they would accurately reflect the number of people who truly could benefit from a bankruptcy. They do not. As an extremely conservative estimate even in the best of times, at least 10% of the population could benefit from bankruptcy relief. And that is a low-end estimate.”
Magauran said a powerful built-in bias against even considering bankruptcy is “much to the detriment of anxious sleepless consumers.”
“The banks and credit card companies routinely scare folks away from filing,” he said. “And why shouldn’t they? It is in their best interests to keep the debt alive and to keep accruing that sweet interest.”
Dunn said bankruptcy filings might continue to decline through the rest of the year because during the holidays people want to continue to use credit for purchases.
“They will try to avoid filing bankruptcy during the holidays and continue to deplete their savings and credit resources,” he said. “After the holidays, people will sit down and look at their finances and take action. With the oncoming recession, I expect bankruptcies to start picking up in 2023.”
Magauran said bankruptcy is a godsend for people with unmanageable debt.
“Just ask our former president who many times was smart enough to take advantage of the benefits that the bankruptcy code offers,” he said.
Magauran said many people wait until the last minute before filing for bankruptcy.
“What the filings do tell you is that for some the wolf is at the door,” he said. “The creditor is pushing, and people do not know where to turn. That is when they consider bankruptcy. It is rare indeed for someone to say, ‘you know, this is unsustainable. I may be able to hold out another couple of months and stay ahead of my creditors. I am going to investigate some real solutions.’ Many sleepless nights could be avoided if folks at least considered what the bankruptcy code could do for them. This federal law is among the most enlightened laws we have.”
In October, Chapter 7 liquidation cases — the most common type of bankruptcy — fell 20.6% to 50 from 63 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, held steady at 24.
There were no Chapter 11 filings in October or in the year-earlier period. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies fell in all four major counties in October. Honolulu County filings fell to 38 from 42, Hawaii County filings slipped to four from seven, Maui County filings declined to seven from 10, and Kauai County filings dipped to one from four.
SEEKING RELIEF
Bankruptcy filings in October fell from a year ago.
2022 2021 PCT. CHANGE
Chapter 7 50 63 -20.6%
Liquidation
Chapter 11 0 0 0%
Business reorganization
Chapter 13 24 24 0%
Individuals with regular sources of income set up plans to pay creditors over time
Total 74 87 -14.9%
Source: U.S. Bankruptcy Court, District of Hawaii
