Hawaii bankruptcy attorneys predict surge in cases

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Oct. 8 – There was a lull in statewide bankruptcy filings in September, as the number of cases fell 10.5% to its lowest level in four months.

There was a lull in statewide bankruptcy filings in September, as the number of cases fell 10.5% to its lowest level in four months.

But this could well be the calm before the storm, say local bankruptcy lawyers.

The 77 cases in September were down from 86 a year earlier, according to new data from the U.S. Bankruptcy Court, District of Hawaii. However, the decline comes a month after bankruptcies jumped 21.8% in August for the first increase after 15 consecutive months of declines.

Honolulu bankruptcy attorney Blake Goodman said pressure was mounting for an influx of filings on the road.

“Things are all pointing to the accumulation of wavering events that could break through the debt dam,” he said. “Soaring inflation, high interest rates, continued supply disruptions, bearish economic forces and even the impact of the Ukrainian war on international trade and energy costs are driving all have bleak prospects for the coming months and years to come.”

Goodman said while cases were down from September 2021 filings, the percentage drop was the smallest of the year.

“With the exception of the recovery in August, September’s comparative decline of 10.5% is well below the 15% to 49% decline in all previous months of the year,” he said. . “In other words, the September numbers still suggest that a bottom is being reached. And if you look at the third quarter as a whole, filings for the third quarter of 2022 were equivalent to 265 bankruptcy filings, only five behind the numbers. from the third quarter of 2021 of 270. It also suggested that bankruptcies may trend higher as we finish this year and head into the next.”

Honolulu bankruptcy attorney Greg Dunn said he was starting to see business pick up.

“My phone calls for people registering to ‘start’ their bankruptcies have increased dramatically, and it’s only a matter of time before we start filing those bankruptcy cases,” he said. . “I see more and more people having up to 25% of their wages garnished by their creditors. People cannot afford to have their checks garnished and have to pay their basic living expenses. seized.”

Goodman said the rate hike was having an effect on his clients.

“I’m starting to notice that inflation and interest rates are having a more direct impact than before,” he said. “We recently took on cases where debtors indicated that the high interest rates on their variable rate credit cards were making it difficult to pay even the minimums and that it was time for them to just throw in the towel. .”

Eugene Tian, ​​chief economist for the State Department of Business, Economic Development and Tourism, agrees that the impact of rising interest rates will affect bankruptcies for those who have debt to their home equity. house and credit card debt, but says it’s too early to see the effect.

“Home equity debt normally has a low rate for two to three years and then floats with the market rate,” he said. “The rise in interest rates started only a few months ago, but we will see the impact in the next few years if interest rates stay high.”

For now, however, he says the state’s economy is doing well.

“Our economic performance is still good with a stable labor market, strong business sales and therefore decent tax revenue growth,” he said. “I believe that bankruptcy filings will not increase significantly over the next few months due to the continued recovery of our economy, in particular the recovery of tourism.

In September, Chapter 7 liquidation cases – the most common type of bankruptcy – fell 10.3% to 52 from 58 in the year-ago 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, fell 10.7% to 25 from 28.

There were no Chapter 11 filings in September or the prior year period. Chapter 11 filings primarily relate to corporate reorganizations.

Statewide, bankruptcies fell in three of the four major counties in September. Hono Lulu County filings fell to 59 from 65, Hawaii County filings slipped to five from seven and Kauai County filings fell to three from five. Maui County deposits increased slightly from nine to 10.

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