High inflation and rising interest rates could be putting the squeeze now on Hawaii consumers’ finances.
For the first time in 16 months, statewide bankruptcies increased from the year-earlier period as filings jumped 21.8% in August.
The 106 cases in August also marked the first time they had reached triple figures after 13 consecutive months of fewer than 100 filings, according to recent data released by the U.S. Bankruptcy Court, District of Hawaii. There were 87 cases in the year-earlier period.
“The tide has turned,” Honolulu bankruptcy attorney Greg Dunn said. “The increase in bankruptcy filings in August clearly shows a momentum, and I expect this trend to pick up after the holidays and into 2023. Programs keeping families afloat have now come to an end, and more people have gone back to work, giving creditors more options to pursue debtors. Given the ongoing economic challenges, it seems likely that this increase in bankruptcy filings will continue.”
Honolulu bankruptcy attorney Blake Goodman says any trend is really apparent only in hindsight but that the upward activity suggests that a trend could be starting or reversing its course.
”We are seeing this summer many more cases with collection lawsuits filed against the debtors than experienced earlier in the year,” he said. “Most are related to run-of-the-mill credit card and personal loan nonpayments, but nontraditional collection matters such as suits for unpaid rent accrued during the many months of the pandemic are beginning to surface. I believe time will tell whether the creditors are losing patience with borrowers and tenants seeking lenient workouts and beginning to gear up for traditional forced collection.”
Dunn foresees the upward momentum possibly continuing through September and October, cooling off during the holidays in November and December, and then rising again in 2023.
Goodman expects a similar scenario.
“September, going into October, will be telling,” he said. “If these months continue with the 100-plus statewide number, then it becomes likely that the bankruptcy declarations will trend higher for the rest of the year. The monthly filings in Hawaii since the last significant downturn in 2005 average about 215 per month. So we have a long way to go before we return to the settling spot in Hawaii.”
Both attorneys blame high inflation for the increase in bankruptcy cases.
”Higher inflation will cause a financial hardship for consumers, making it more difficult for them to pay their debts,” Dunn said. “As I see it now, the cost of living continues to increase, but people’s income is staying the same. I’m hearing from my clients that they have no choice but to deplete their savings or increase their debt. This will lead to more bankruptcies.”
Goodman said for most people ending up in the bankruptcy court, such as middle- and lower-income families, the inflation rate hits their gas tanks and dinner tables.
“This definitely restricts the amount they have available to meet monthly debt obligations,” he said. “I haven’t seen too many clients come into our office with a high escalating variable mortgage payment that is causing havoc, but I’m sure it’s only a matter of time. However, the higher mortgage rates are spelling out the end of the tremendous house appreciation that homeowners have enjoyed over the past few years. This reduces their ability to use home equity to borrow against as a means to float an otherwise sinking household boat.”
In August, Chapter 7 liquidation cases — the most common type of bankruptcy — rose 11.5% to 68 from 61 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, jumped 34.6% to 35 from 26.
And there were three Chapter 11 reorganization filings in August, compared with none in August 2021. The companies filing for Chapter 11 were HIE Holdings Inc. and Hawaiian Isles Kona Coffee Co., affiliates of Royal Hawaiian Water Co., which filed for Chapter 11 in July; and Kailua resident Joyce Anne Chandler.
Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies were mixed in the four major counties in August. Honolulu County filings rose to 86 from 62, and Kauai County filings edged up to four from three. Hawaii County filings fell to six from nine, and Maui County filings declined to 10 from 13.
SEEKING RELIEF
Bankruptcy filings in August rose from a year ago.
2022 2021 PCT. CHANGE
Chapter 7 68 61 11.5%
Liquidation
Chapter 11 3 0 —
Business reorganization
Chapter 13 35 26 34.6%
Individuals with regular sources of income set up plans to pay creditors over time
Total 106 87 21.8%
Source: U.S. Bankruptcy Court, District of Hawaii
