Hawaii bankruptcy attorneys are seeing an uptick in phone calls in what could be the start of an upward trend in filings.
Although bankruptcies have declined 19 of the past 22 months from the year- earlier period, the number of cases filed have risen two of the past three months, according to data from U.S. Bankruptcy Court, District of Hawaii.
In February the number of bankruptcies rose 6.8% to 79 from 74 in the year- earlier period. The number of filings in December also were up year over year.
That might not yet indicate a trend, but the Federal Reserve’s determination to keep raising interest rates to fight inflation may be taking its toll on consumers.
“Judging by the new client calls we are getting at our firm, the filing numbers in Hawaii are set to increase markedly in the next few months,” Honolulu bankruptcy attorney Blake Goodman said. “Because credit cards are foremost pegged to the Fed’s prime rate and that is going up dramatically, the ability to fund just minimum payments is robbing food from the table and gas from the tank of many Hawaiians who live on a tight budget. When living under that strain, a slight setback to the family’s income can lead to declaring bankruptcy as a means to stay afloat.”
Honolulu bankruptcy attorney Ed Magauran expects to see more bankruptcies locally because the national trend is rising. He notes that overall U.S. filings were up 18% in February, with Chapter 7 liquidation cases up 12%, Chapter 13 payment-plan filings up 28% and Chapter 11 commercial filings jumping 83%.
“There is no indication that this trend will not continue and that Hawaii will not see additional filings,” Magauran said. “Locally in Hawaii, we have the highest average monthly rent, utility costs, car insurance and health insurance costs in the country. The hangover of all the COVID money has mostly washed through the system. and the creditors are getting more aggressive.”
Magauran said that total household debt is up, credit card debt is way up and subprime car loan delinquencies are spiking.
Honolulu bankruptcy attorney Greg Dunn said he also is receiving more phone calls.
“With the Federal Reserve focus on raising interest rates to fight inflation, businesses are facing a higher investment cost, and this will cause more job loss, resulting in more personal bankruptcies,” Dunn said. “Higher interest rates and prices will also have a direct burden on many local households.”
Dunn said he foresees Hawaii’s economy dropping off later this year as interest rates continue to go higher, slowing people’s buying power, causing the local economy to contract and resulting in more job losses.
“I’m receiving more calls inquiring about bankruptcies because of reduced work hours and job loss,” he said. “Businesses are downsizing. Time will tell how this will play out, but it is certainly looking like Hawaii’s economy will be disrupted.”
In February, Chapter 7 liquidation cases — the most common type of bankruptcy — rose 17% to 55 from 47 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, dipped 4% to 24 from 25.
There were no Chapter 11 filings in February, compared with two in the year- earlier period. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies fell in three of the four major counties in February. Honolulu County filings increased to 63 from 47. However, Hawaii County filings dipped to three from five, Maui County filings dropped to 11 from 19 and Kauai County filings slipped to two from three.
SEEKING RELIEF
Bankruptcy filings in February rose from a year ago.
2022 2021 PCT. CHANGE
Chapter 7 55 47 17%
Liquidation
Chapter 11 0 2 —
Business reorganization
Chapter 13 24 25 -4%
People with regular sources of income set up plans to pay creditors over time
Total 79 74 6.8%
Source: U.S. Bankruptcy Court, District of Hawaii
