Hawaii bankruptcy filings are leveling off after dropping for three years in a row and 10 of the last 12 years.
The 86 cases in March were down just one from the year-earlier period, and through the first three months of 2023 filings were up just one compared with the same time in 2022.
Bankruptcies have declined in 20 of the past 23 months from the year-ago period, according to new data from U.S. Bankruptcy Court, District of Hawaii.
But Honolulu bankruptcy attorneys say it’s just a matter of time before debt-laden consumers bite the bullet and seek financial protection.
“It costs more to live and we’re all frogs boiling in the inflationary pot,” attorney Blake Goodman said. “We acclimate slowly, but eventually people won’t be able to make their money last for the entire month, and the decision to file personal bankruptcy to keep food on the table becomes a viable lifeline.”
Goodman cautions not to be fooled by the static bankruptcy numbers.
“Calls are up, but the lag time from initial case inception to case filing can take months,” he said. “There’s no way we don’t have at least a 20% increase in bankruptcy filings this year compared to last.”
Attorney Greg Dunn said he provides free consultations to people and finds that most don’t sign up for bankruptcy right away because they want to test out other options first, which includes debt settlements, loans, credit cards, credit lines and savings.
“I find that some people are afraid to file for bankruptcy because they think that it means they’re admitting they failed in some way, but nothing could be further from the truth,” Dunn said. “When the other options don’t work out, they come back sometimes in two to three years or when their checks are being garnished.”
Likewise, attorney Ed Magauran said he is talking to more people interested in pursuing their options to take control of their unmanageable debt.
“I think the reason that people are reaching out is that they are realizing that something has to give,” Magauran said. “On the one hand, they are afraid of the perceived stigma of filing a bankruptcy — the stigma which is wildly overblown in my opinion.
“And on the other hand, they are unable to make ends meet. They are tentatively looking at all their options and bankruptcy is one of them. What people have to realize is that bankruptcy is a tool like any other tool. It is a very enlightened federal law that is available to all Americans. It is not a trick. It is not a game. It is not a cop-out. It is the law. People should take advantage of their rights under the law if they need it. They should not be scared away. They should understand the power of the law that works to their benefit.”
In March, Chapter 7 liquidation cases — the most common type of bankruptcy — declined 9.8% to 55 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, rose 19.2% to 31 from 26.
There were no Chapter 11 filings in March or the year- earlier period. Chapter 11 filings are primarily for business reorganization.
Across the state, bankruptcies were mixed in the four major counties in March. Honolulu County filings increased to 69 from 64 and Hawaii County filings rose to seven from four. Maui County filings dropped to seven from 16 and Kauai County filings remained even at three.
