Hawaii bankruptcies shriveled to a 15-year low in 2021 as the state received an infusion of federal aid and overcame a tumultuous 12 months beset by COVID-19 variants delta and omicron as well as a labor shortage and international travel restrictions.
The 1,184 filings in 2021 were 22.3% lower than the 1,524 in 2020 and marked the second straight down year and the lowest number of filings since there were 955 in 2006, according to new data released by the U.S. Bankruptcy Court, District of Hawaii. The 2006 number was unusually low because people had rushed to file in 2005 ahead of an October change in the Bankruptcy Code that made it more difficult and costly to seek financial protection.
Honolulu bankruptcy attorney Greg Dunn said the low number of filings might continue awhile but that they don’t reflect the struggles that some Hawaii residents are presently incurring.
“I don’t believe the falling number for bankruptcy cases in the state truly reflects what is happening in Hawaii,” he said. “I talk to a lot of people struggling and barely making it in Hawaii. So, I do see a return to normal bankruptcy filings on the horizon, but there is no telling when it might finally happen. Most people I talk to regarding bankruptcy try to find other alternatives to bankruptcy until there’s no other options.”
The year ended with a whimper with the 83 filings in December representing the lowest for any month in 2021 and for any December since there were 43 in December 2005. The 83 filings marked the eighth time in 2021 that there were fewer than 100 filings in a month and represented the lowest number for any month since there were 82 cases filed in November 2006.
Two factors contributed to the low bankruptcy filings in 2021, according to Eugene Tian, chief economist for the state Department of Business, Economic Development and Tourism.
One factor was the $20 billion in federal funds that came to Hawaii to assist the state in fighting COVID-19.
The other factor was the recovery of the state economy. Hawaii’s inflation-adjusted growth rate, or real gross domestic product, during the first nine months of 2021 was 5.6%, the highest since 2006, according to the U.S. Bureau of Economic Analysis.
Tian said Hawaii’s inflation-adjusted GDP recovered 94% during the first nine months of 2021 of where it was in 2019. As a comparison, real GDP in 2020 was 89.2% of the 2019 level.
“Because of the magnitude of the federal government policies, the usual economic phenomena disappeared during this economic recession-expansion period such as personal income and bankruptcy,” Tian said. “During a normal recession year, personal income would decrease and bankruptcy filings would increase. However, during this COVID-driven recession and expansion period, personal income increased and bankruptcy decreased. This indicates that government policies play very important roles in economic growth and community well-being.”
Both Tian and Dunn said it may not be too long before bankruptcies begin to swing the other way and start to rise.
“I expect bankruptcies in Hawaii will start to increase in 2022 due to the reduced assistance from the federal government,” Tian said. “However, because of the accelerated economic recovery, especially the improvement in international tourism in 2022, the increase in bankruptcy filings will not be large.”
Dunn, likewise, said people in debt can hold out only so long before seeking financial relief.
“My consultation notes indicate that people wait for about two years before filing for bankruptcy unless there is a wage garnishment on their paychecks, or their house is being sold in a foreclosure and they want to file a Chapter 7 or 13 bankruptcy,” Dunn said. “When government relief programs come to an end, consumer financial woes will result in more bankruptcy filings. Higher interest rates and inflation could lead to more bankruptcy filings in 2022.”
In 2021, Chapter 7 liquidation filings — the most common type of bankruptcy — dropped 26.3% to 849 from 1,152 in 2020.
Chapter 13 filings, which allow individuals with regular sources of income to set up plans to make installment payments to creditors over three to five years, fell 10.4% to 326 from 364.
There were nine Chapter 11 filings in 2021, compared with six in 2020. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies fell in all of the four major counties in 2021. Honolulu County filings dropped to 856 from 1,117, Hawaii County filings declined to 104 from 124, Kauai County filings dropped to 47 from 61 and Maui County filings fell to 177 from 222.
SEEKING RELIEF
Bankruptcy filings in 2021 fell from a year ago.
2021 2020 PCT. CHANGE
Chapter 7 849 1,152 -26.3%
Liquidation
Chapter 11 9 6 +50%
Business reorganization
Chapter 13 326 364 -10.4%
Individuals with regular sources of income set up plans to pay creditors over time
Chapter 15 0 2 —
Ancillary to a primary prceeding brought in another country
Total 1,184 1,524 -22.3%
Source: U.S. Bankruptcy Court, District of Hawaii
