Local nonprofit labor organization Unity House Inc. filed for bankruptcy protection yesterday to stave off a creditor seeking to repossess its largest asset, the Lotus at Diamond Head hotel.

Unity House made the Chapter 11 filing mainly to give it more time to refinance the debt on the boutique hotel on the "Gold Coast" of Waikiki or to sell the property to pay off its delinquent loan.

"Both are possible," said Jim Boersema, Unity House chairman. "Steps are being taken to protect and preserve the assets of Unity House."

MK Pacific LLC, a Washington state-based firm, is the largest creditor of Unity House. MK Pacific loaned Unity House $5.5 million to buy the Lotus in December 2009 for $8.5 million, but filed a foreclosure lawsuit in February after the one-year loan matured.

MK Pacific claims it is owed about $5.9 million on the delinquent loan, and obtained a judge’s approval two weeks ago to have a local attorney oversee the finances of the hotel.

The loan with MK Pacific is also secured by Unity House’s headquarters building at 1701 Ala Wai Blvd. at the Ewa end of Waikiki.

Unity House, in its bankruptcy filing, said its total assets and debts each range from $1 million to $10 million. But Boersema said assets are near $25 million.

Donald L. Spafford Jr., the local attorney who filed the Chapter 11 petition for Unity House, said the filing was an emergency basis that prevented a better estimate. He agreed that assets should be more than $10 million.

Boersema said the Lotus was appraised at $12.7 million in September, while the headquarters, which is being marketed for sale, is worth close to $4 million.

The Lotus hotel loan is Unity House’s biggest debt. The nonprofit also listed $339,000 in debts owed to creditors who don’t have claims secured by Unity House assets.

Most of these unsecured debts involve present and past Unity House officers, including a $100,000 loan owed to Vice President Adam Enos and a $150,000 disputed claim for legal fee reimbursements from former executive Aaron Rutledge.

Unity House, which at one time had more than $40 million in assets, has been under financial pressure in the past few years, and in that time has curtailed or suspended its biggest charitable-giving programs, including providing child care assistance and scholarships for beneficiaries.

The nonprofit founded in 1951 has more than 20,000 beneficiaries, mainly families of present and past members of two of Hawaii’s biggest unions, the Teamsters and Unite Here Local 5.

Meltdowns in stock and real estate markets in recent years dramatically reduced Unity House’s income from its investments and led to program suspensions.

One major loss resulted from an investment Unity House made in a Wai­pio industrial condominium development that was lost in foreclosure after unit buyers dried up in the market collapse.

Unity House responded by cutting program spending from nearly $1.6 million in 2008 to $620,320 in 2009, according to tax returns. Information isn’t available for 2010.

Unity House had hoped that the Lotus would be a source of significant income. The nonprofit planned to convert the property’s 51 hotel rooms into condominium units to be sold for around $300,000 apiece, potentially generating $15 million in proceeds.

Proceeds were to be split 50-50 with MK Pacific, whose principals include Roger May and Peter Kuttel, while leaving the lender with a second-floor commercial space that formerly housed a nightclub. Unity House planned to retain a penthouse unit.

The hotel, which is managed by Castle Resorts & Hotels, turns a modest profit, according to court filings. Net profit from the Lotus was $291,496 last year, up from $14,100 in 2009.