Hawaii bankruptcies continue downward trend

Hawaii bankruptcies continued to defy expectations of a pandemic-fueled spike and declined in October for the eighth time in 10 months.

Even with state unemployment at a U.S. high of 15.1% and tourism just starting to reopen after a major economic downturn, the number of filings plunged 22.8% in October to 125 from 162 in the year-earlier period, according to data Monday from the U.S. Bankruptcy Court, District of Hawaii.

Year to date through October, bankruptcy filings were down 9.8% to 1,274 from 1,412 during the same period in 2019.

Honolulu bankruptcy attorney Blake Goodman said the decrease in filings is unexpected but that he expects cases to surge next year to a five-year high once federal and state financial assistance measures provided to individuals and businesses run their course.

“I’m super surprised that bankruptcy cases are declining because everybody asks me, ‘You’re a bankruptcy attorney. You must be busy because of the economic downturn.’” Goodman said. “That translates in most people’s minds to debtors having the need for relief. But bankruptcy filings across the U.S. are down 40%.”

Goodman attributes the decline to three reasons:

1) Forbearances on foreclosures and evictions, landlords and tenants of residences and commercial properties working out payment plans, and credit collection activity being light because the courts are closed and matters are being conducted online.

2) Economic stimulus for unemployment, Paycheck Protection Program loans and other federal and state assistance that are helping people get through each month without having to worry about debt repayment.

3) Consumers still being “deer in the headlights” because their primary needs to pay their rent and put food on the table supersede their needs to pay creditors.

But Goodman said he expects people’s financial situations to take a turn for the worse next year.

“I think there’s going to be a return to normal filing volumes next year that will get us back from the double-digit declines that we’ve been experiencing this year to double-digit, month-over-month increases,” he said. “So 2021 is probably going to be a big economic cleanup year. A lot of creditors, a lot of debtors, business landlords — everyone is going to readjust to protect their economic interest. I think 2021 is easily going to be the biggest bankruptcy year in the last five. If the vaccine is delayed, it’s just going to continue to increase the economic woes.”

In October, Chapter 7 liquidation filings — the most common type of bankruptcy — fell 19.8% to 93 from 116 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, dropped 27.3% to 32 from 44.

There were no Chapter 11 reorganization filings — used for business reorganizations — compared with one in the year-earlier period. There also were no Chapter 12 filings last month but one in October 2019. Chapter 12 filings are for family farmers and fishermen.

Bankruptcies fell in all four major counties. Honolulu County filings fell to 91 from 116, Hawaii County filings edged down to 11 from 12, Maui County filings dropped to 21 from 27 and Kauai County filings decreased to two from seven.

SEEKING RELIEF

Bankruptcy filings in October fell from a year ago.

2020 2019 PCT. CHANGE

Chapter 7 93 116 -19.8%

Liquidation

Chapter 11 0 1 —

Business reorganization

Chapter 12 0 1 —

Family farmers and fishermen

Chapter 13 32 44 -27.3%

Individuals with regular sources of income set up plans to pay creditors over time

Total 125 162 -22.8%

Source: U.S. Bankruptcy Court, District of Hawaii