'Another signpost on the
economic road to nowhere'

Star-Bulletin staff

Battered by Hawaii's economic dead end, a record 1,269 local individuals and businesses joined Liberty House in filing for bankruptcy protection in the first quarter of 1998.

That's a 28.4 percent increase from the 989 filings in the first three months of 1997, which ended up setting the seventh consecutive annual record for statewide bankruptcies.

"Unfortunately, it's another signpost on the economic road to nowhere," said Paul Brewbaker, Bank of Hawaii's chief economist.

Bankruptcies in Hawaii have skyrocketed since the state's economy fell into stagnation in 1991. Last year 4,454 local residents and companies sought bankruptcy court protection, a whopping 44.4 percent increase from the year-earlier record.

The Office of the U.S. Trustee, which oversees bankruptcy court administration, said the majority of the 1,270 filings in the quarter that ended Tuesday were Chapter 7 liquidation bankruptcies.

Of course, the highest-profile case in the first quarter came March 19 when longtime isle retailer Liberty House shocked the state by filing for Chapter 11 reorganization. Since then that case has been the subject of a court battle as the retailer struggles to obtain financing to continue operating. (See story.)

Brewbaker called bankruptcies "lagging indicators" that point to the long-term sluggishness of Hawaii's economy.

"I say it all falls into the same pattern that's been in place now for several years: continuation of a no-growth scenario and the cumulative toll of business failures that the stagnation has created," he said.

But the state's chief economist, Pearl Imada Iboshi, noted that bankruptcy filings are soaring nationwide even as the mainland economy is booming. "It has very little to do with economic conditions," she said.

Although the rate of increase here is higher than it is nationwide and bankruptcies are a concern, "we don't consider the number of bankruptcy filings to be a good indicator of economic activity as evidenced by the national trend," Iboshi said.

David Ramsour, an independent economist and consultant, said personal bankruptcies are often a result of declining property values. As market values drop below mortgage levels, many homeowners are just letting the homes go and filing bankruptcy, he said.

One small bright spot: The latest quarter's 28.4 percent increase in total filings was below the nearly 40 percent increase in the first quarter of 1997 vs. the same period in 1996.

Brewbaker said bankruptcies may continue to drift higher until something turns the economy around.

Gayle Lau of the Office of the U.S. Trustee said job losses make it hard for people to pay bills and maintain a household. "It certainly reflects what's going on in the economy," he said.

But he added, "Hopefully, the cycle and the trend will reverse itself."

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Star-Bulletin reporter Harold Morse contributed to this report.