Hawaii bankruptcies keep declining despite rising interest rates that are putting a strain on consumers.
The 67 cases filed in January were three fewer than the year-earlier period and were the lowest total since 57 were filed in February 2006, according to recent data from U.S. Bankruptcy Court, District of Hawaii. The number of monthly cases has now declined 19 of the past 21 months from the year-earlier period.
Honolulu bankruptcy attorneys say, based on the traffic they’re seeing in their offices, that the downward trend likely will reverse fairly soon.
“Most people have avoided filing for bankruptcy because they have been using their savings and credit sources to pay their creditors,” bankruptcy attorney Greg Dunn said. “This will change when people exhaust all of their savings and credit resources. Combined with the pressure from creditors, that will force people into bankruptcy. I believe bankruptcy filings will start to increase amid growing debt loads due to inflationary pressures and reduced availability of low-cost financing.”
Bankruptcy attorney Blake Goodman, who calls the low number in January a “one-off” event, said he’s seeing more clients than in 2022.
“Having our pulse on the incoming calls from distressed debtors leads us to believe the number of cases filed in the next few months should trend significantly upward,” he said. “The interest rate increase on variable credit cards and aggressive tax collection seem to be the main drivers, although home foreclosures are beginning to spike as well.”
Dunn said as consumers return to their old borrowing habits and exhaust their savings and credit resources, they will seek bankruptcy as an option to deal with their debt issues.
“As the cost of living continues to rise faster than wage growth, one can only guess when people will have to make a decision between paying for groceries or servicing debt,” he said.
Bankruptcy attorney Ed Magauran said there is increasing sentiment that the country might have dodged a bullet on a deep recession. Still, he said his clients are curious whether their debt problems can be remedied in part or in full with a bankruptcy filing.
“There are ‘shoots of hope’ that the economy is getting better, jobs are up, inflation isn’t gaining at the alarming rates that it has been over last year,” he said. “In general, despite that, the folks that I talk with are facing steep financial problems. There seems to be a hope that we, as a country, are rounding a corner and perhaps smoother sailing may be ahead, which could provide a means for folks to increase their earnings and stay away from the dreaded collectors.”
In January, Chapter 7 liquidation cases — the most common type of bankruptcy — rose 9.3% to 47 from 43 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, fell 25.9% to 20 from 27.
There were no Chapter 11 filings in January or in the year-earlier period. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies were mixed in the four major counties in January. Honolulu County filings decreased to 46 from 49, and Hawaii County filings plunged to one from 11. Maui County filings nearly doubled to 17 from nine, and Kauai County filings tripled to three from one.
SEEKING RELIEF
Bankruptcy filings in January fell from a year ago.
2022 2021 PCT. CHANGE
Chapter 7 47 43 9.3%
Liquidation
Chapter 11 0 0 0%
Business reorganization
Chapter 13 20 27 -25.9%
People with regular sources of income set up plans to pay creditors over time
Total 67 70 -4.3%
Source: U.S. Bankruptcy Court, District of Hawaii
