Rising debt steers Hawaii consumers toward bankruptcy
Hawaii bankruptcies continue to remain historically low, but local attorneys say the number of monthly filings belie the reality that many consumers are in financial straits.
Even though the number of cases in June rose 10.3% to 86 from 78 in the year-earlier period, filings remained under 100 for the 23rd time in the last 24 months, according to new data from U.S. Bankruptcy Court, District of Hawaii.
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“Since the pandemic and before the pandemic, I don’t think that there really has been any change in the situation for most folks,” Honolulu bankruptcy attorney Ed Magauran said. “We are all juggling debt. We are all robbing Peter to pay Paul. We are all paying the monthly minimums and seeing our balances grow. That is sustainable until it is not. The triggering event is usually collection.”
Magauran said if the collector is not making demands, it is easier to limp along making minimum payments rather than to face the full debt mountain head-on.
“But at some point, usually from outside pressure, people realize that they need to do something different,” he said. “They need to wipe out their debt completely. It is then and only then that they consider bankruptcy.”
Statewide bankruptcies climbed to 3,954 in 2010 and then fell for seven straight years starting in 2011 through 2017 before rising in 2018 and 2019. They then fell again from 2020 through 2022 when they ended the year with 951 cases. At its current rate with 499 at midyear, the number of filings for 2023 would be 998 — or slightly above 2022’s total.
“The current trend is that bankruptcy filings are rising since 2022 with more people inquiring to file bankruptcy in Hawaii because they are still struggling with high prices in food, gasoline, electric, child care and housing,” said Hono lulu bankruptcy attorney Greg Dunn, adding that bankruptcies remain low because there’s been a recent rise in personal income and inflation has receded.
Honolulu bankruptcy attorney Blake Goodman predicts the numbers will “spike high” but haven’t done so already because of low unemployment and creditor collection activity that is just ramping up to pre-pandemic levels.
“The interest changes themselves are forcing debtors into my office, because their credit card payments have doubled since the beginning of this year,” he said. “Also, we are finally seeing home foreclosures start up again in Hawaii after a few years’ hiatus. The huge delinquencies after the pandemic on mortgages is forcing creditors to send homeowners to court to decide the fate of their house. Informal workouts, negotiations and loan modifications are no longer as available. Bankruptcy is, of course, the fastest, simplest, most inexpensive way to fight back against the foreclosure and save your property.”
Magauran said monthly filings will exceed 100 again “at some point in the future.”
“What will drive that is, for the most part, collection activity as creditors ramp up their collection efforts,” he said. “We will be seeing more folks needing to file bankruptcy. I often get calls from people who are concerned because they have been served a lawsuit. I ask them about their other debts, and they say, ‘Why are you asking about the other debts? I only want to talk about this lawsuit.’ As we discuss it further, we determine that the lawsuit debt is a small fraction of the total overall debt. What people come to realize is that bankruptcy is an option for them to deal with all of their debt in one place.”
Goodman said Hawaii consumers are pressed with higher variable interest rates on credit cards and adjustable mortgages, and inflation that is causing a squeeze.
