Hawaii bankruptcies go up 29% on heels of rising rates

Bankruptcy cases in April hit a monthly high for the year, as rising interest rates and high inflation finally appear to be stretching thin the finances of Hawaii consumers.

The 89 filings last month were up 29% from 69 in the year-earlier period and marked the second time this year that cases had risen from the same time frame in 2022, according to new data from U.S. Bankruptcy Court, District of Hawaii.

“From the phone calls I receive from consumers, Hawaii residents are struggling with high interest rates,” Honolulu bankruptcy attorney Greg Dunn said. “I talk to consumers who have to eat Spam and saimin and work two or three jobs to make ends meet. I hear how rents are being increased but the paycheck is not.

“If businesses are booming here, there is no trickle- down effect to the worker. Price increases may be slowing down, but unfortunately the damage has been done. We have not seen any signs of prices coming down at the grocery stores, gas pumps, housing or taxes. Many Hawaii consumers remain afloat with their debt and are just treading water.”

Honolulu bankruptcy attorney Blake Goodman said that higher interest rates are causing variable credit cards and mortgage payments to increase, resulting in many consumer debtors to struggle to make ends meet.

“If they are close to the tipping point, then bankruptcy is a tool that allows them to re-balance their finances and achieve a new start, especially when people consider that they only lose their property in about 1% of the cases filed in Hawaii,” he said.

Goodman said, however, that even though bankruptcy cases are rising, they historically are pretty low.

“In the years leading up to the pandemic it was rare that the number of cases did not exceed triple digits,” he said. “Those kind of numbers have not appeared since June of 2021, even with the economic headwinds and pandemic shutdowns facing consumers. The number of cases will continue to rise this year, but the one economic indicator that is still low, and I believe keeping the bankruptcy filings low, is unemployment. We are at 3.5%, which is one of the historical lowest unemployment levels in Hawaii. When this index creeps higher, then unfortunately bankruptcies will escalate quite sharply.”

Dunn said consumers racked up debt during the pandemic and are now feeling the pain trying to catch up with their bills. The average credit card debt in Hawaii at the end of last year was $8,556, according to a recent LendingTree study that placed Hawaii seventh nationally in terms of the most credit card debt per person.

“The price of food, gas and electricity is a lot higher today than before the pandemic, and it is also more expensive today to use a credit card,” Dunn said. “Interest rates for cars and home loans are higher. With the high cost of living here in Hawaii and wages not keeping up with inflation, there is a large, large percentage of people in Hawaii that are struggling to get by. The combination of inflation and high cost of credit is squeezing the people in Hawaii.”

In April, Chapter 7 liquidation cases — the most common type of bankruptcy — increased 23.3% to 53 from 43 in the year-earlier period.

Chapter 13 filings, which allow people with regular sources of income to set up installment payments to creditors over three to five years, rose 34.6% to 35 from 26.

There was one Chapter 11 filing in April. There were no filings in the year-earlier period. Chapter 11 filings are primarily for business reorganization.

Across the state, bankruptcies rose in three of the four major counties in April. Hono­lulu filings increased to 69 from 50, Hawaii County filings rose to eight from five, and Kauai County filings ticked up to five from three. Maui County filings slipped to seven from 11.