Statewide bankruptcies nose-dived 20.2% last month to their lowest total in 16 years, but there’s mixed opinion on whether the ending of both the state’s eviction moratorium, and federal unemployment insurance and assistance programs, will bump up cases during the rest of the year.
The 87 cases in August marked the seventh month out of eight this year that filings were down from the year-earlier period, and represented the fewest cases for any month since there were 87 filed in December 2006. It also was the fewest for any August since 2006 when there were 83 cases filed that month, according to new data released by the U.S. Bankruptcy Court, District of Hawaii. There were 109 cases filed in August 2020.
Some Honolulu bankruptcy attorneys expect the number of filings to begin climbing soon while chief economist Eugene Tian of the state Department of Business, Economic Development and Tourism said the bankruptcy case load should remain low.
“We are really in a difficult place. A delta place,” Honolulu bankruptcy attorney Ed Magauran said in an email. “Numbers rising, an eviction moratorium ending, landlords and renters hurting alike, schools reopening, a governor rightly discouraging travel here, a third (booster) shot, waning immunity, a truculent few — all make for a muddy horizon which is profoundly unaided by the blinders on the Supreme Court decision. God help us all.”
On Aug. 26, the U.S. Supreme Court blocked the Biden administration’s order extending the federal eviction moratorium for most of the country. A two-month extension previously had been issued by the Centers for Disease Control and Prevention, and Gov. David Ige received guidance from the CDC indicating that most of the state was covered by the CDC’s action. That extension had continued the temporary eviction ban until a county no longer had substantial or high levels of community transmission for 14 consecutive days or until Oct. 3, whichever came earlier.
Ige spokeswoman Cindy McMillan said Thursday there is currently no eviction moratorium in place in Hawaii.
“Gov. Ige is moving forward with implementation of the law passed by the Legislature, which includes the new mediation requirements,” McMillan said. “He is encouraging renters to apply for emergency rent assistance from the counties and indicated the counties still have plenty of funds to award.”
Magauran said what he’s seeing from his clients does not present a pretty picture.
“One reason (among several) why you saw the bankruptcies in August so low was this moratorium that is now defunct,” he said. “If the Governor would step in for us here it would help HI renters a lot to keep folks in their homes.
“If not, what HI renters need to know is that once a writ of possession is signed by the Court and filed, even a bankruptcy court can’t stay an eviction. Once the renter is served the complaint, they need to carefully consider their options. If they can get rental assistance and get it timely paid to the landlord, then they can breathe a sigh of relief. If not, they and their families could be in trouble.”
Magauran said that renters could, if they file bankruptcy before the writ is filed in state court, get a bankruptcy stay and likely get several more months in the property and become debt-free.
“Even with an operative stay they would have to leave, but not in September, and when they do (leave), at least leave … debt-free,” he said.
Besides the end of the eviction moratorium, federal benefits ended Saturday for those receiving Pandemic Emergency Unemployment Compensation (PEUC), Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment Compensation (FPUC) and Mixed Earners Unemployment Compensation (MEUC). The end of those programs means that only regular Unemployment Insurance will be available.
Magauran called it “adding insult to injury.”
“The fact that people were not being evicted and they were receiving additional federal aid was another reason why bankruptcies are down and why people were doing OK,” he said. “Without these two safeguards in place, a lot of people are facing a much more uncertain future.”
Magauran said it’s been a balancing act for people who are financially stretched.
”The reason bankruptcies are down is not because people have too much debt,” he said. “It’s because they’ve been focusing on just getting by. And creditors too, they know this. They have been more lenient. That’s about to end as well. Not just landlords but banks and credit cards as well.”
Tian said the end of federal benefits at the same time that COVID-19 cases are surging is a double whammy for the state.
“The federal unemployment insurance program is ending at the time that the COVID-19 cases are rising and unemployment claims are increasing,” Tian said in an email. “During the week ending Aug. 28, initial unemployment claims in Hawaii was 2,218, higher than the average of the previous 4 weeks of 2,063.
“More unemployment and lower benefits means lower income for the families with unemployed. The impact on bankruptcy depends on the duration of the current COVID spike. There is a much higher pressure on bankruptcy now. I expect the bankruptcy figures will remain low for September and the rest of the year for two main reasons: (1) households have more savings; (2) the expectation of further federal assistance if the COVID-19 cases remain high.”
Tian said that the rental assistance program at the county government level continues to accept applications and that those households staying in rental homes can get county assistance.
“There might be increase in eviction cases, but Hawaii has been one of the lowest in eviction rates in the nation,” Tian said. “I don’t see the expiration of the eviction moratorium will impact bankruptcy much.”
Tian said Hawaii’s economy had been experiencing a steady recovery until July, and compared to the same time in 2019, visitor spending had recovered by 93.2% and the nonagriculture payroll jobs count had recovered 88.4%.
“The current restrictions (that limit gathering sizes on Oahu and will soon require proof of vaccination or a negative COVID-19 test) will delay the recovery, but it is expected to be for two months,” Tian said. “The recovery will be accelerating when the restriction is over since the pent-up demand is very strong. I do expect the bankruptcy numbers will remain low for the rest of the year.”
Honolulu bankruptcy attorney Greg Dunn expects just the opposite to occur, however.
“With less government assistance, I believe bankruptcies will rise for the remain- der of the year,” Dunn said. “Bankruptcies will probably also rise with the eviction moratorium being over if landlords sue tenants for past rent. With the delta variant beginning to surge again, restaurants or public facilities may be shut down and tourists coming to Hawaii will stop coming, resulting in job layoffs hurting our economy. Combined with less government assistance, bankruptcies may rise again.”
Year to date, bankruptcies through August were down 17.9% to 841 from 1,024 in the year-ago period as they stayed on track to decline for the second year in a row. At the current pace of filings, Hawaii will end the year with 1,262 cases — the fewest number of cases since there were 955 in 2006, when there were fewer cases 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.
In August, Chapter 7 liquidation filings — the most common type of bankruptcy — dropped 17.6% to 61 from 74 in the year-earlier period.
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 23.5% to 26 from 34.
There were no Chapter 11 filings last month as well as the year-earlier period. Chapter 11 filings are primarily for business reorganization.
There also was one Chapter 15 filing in August 2020. Chapter 15 filings, which allow a foreign debtor to file for bankruptcy in the United States court system, is used for insolvency cases that involve people or businesses with assets in more than one country.
Around the state, bankruptcies fell in three of the four major counties last month. Honolulu County filings dropped to 62 from 79, Hawaii County filings dipped to nine from 10, Maui County filings declined to 13 from 18 and Kauai County filings ticked up to three from two.
SEEKING RELIEF
Bankruptcy filings in August fell from a year ago.
2021 2020 PCT. CHANGE
Chapter 7 61 74 -17.6%
Liquidation
Chapter 11 0 0 0%
Business reorganization
Chapter 13 26 34 -23.5%
Individuals with regular sources of income set up plans to pay creditors over time
Chapter 15 0 1 —
Allows foreign debtor to file in U.S.
Total 87 109 -20.2%
Source: U.S. Bankruptcy Court, District of Hawaii
