Isle bankruptcy
filings surge

Filings are up 33%
for the first 9 months and
are expected to top 5,000
for all of 1998

By Peter Wagner and Russ Lynch
Star-Bulletin

It was another record-breaking quarter for bankruptcies in Hawaii, with filings up 33 percent so far this year.

Figures released by U.S. Bankruptcy Court show a total of 4,284 cases through the third quarter -- nearly matching last year's annual total of 4,454.

Officials predict Hawaii filings will top 5,000 for the first time before the end of this year.

"They just keep going up," said U.S. Trustee Gayle Lau.

"It's more of the same kind of thing," said Leroy Laney, an economics professor at Hawaii Pacific University and consultant to First Hawaiian Bank.

"We're still a fairly weak economy, and it's still exacting casualties from the ranks of business, especially small business."

"A lot of structural changes are going on in the economy," he said. It's the small firms that are going under, he said.

Interestingly, Laney said, there are some pockets of strength.

Businesses that depend on local consumers are doing better than tourist-dependent companies, he said, noting higher sales at shopping centers that cater to residents compared with plunging sales at the tourist centers.

The bankruptcy court's Lau said that in the quarter that ended yesterday, 1,553 cases were cases were filed, more than in any previous quarter. The quarter's total was up 38 percent compared with 1,123 in the third quarter of 1997.

However, Paul Brewbaker, chief economist at Bank of Hawaii, said it is important to note that the rate of increase has been slowing.

For all of last year, bankruptcies were up 44 percent from the year before, he said, while now the increase rate is in the "low 30s."

"It's a continuing pattern of deceleration of growth that is encouraging because it's pointing toward a turning point," he said.

While acknowledging that he has been saying the same thing for a while and bankruptcies are still up, Brewbaker maintained that the slowdown in the rate of increase is still a good sign.

If the rate of increase gets down into the 20 percent area by the end of this year or into 1999, he said, a number of economic statistics will start to look better.

Among notable bankruptcy filings in the third quarter was Jimmy's Travel Inc., a Chapter 7 liquidation case in July. The bankruptcy left more than 2,000 customers without the Las Vegas travel packages they'd purchased.

Honolulu Book Shops filed for Chapter 11 reorganization in April but opted for liquidation under Chapter 7 in August. Sandy Brodie's Honda filed for Chapter 11 reorganization in August.

The surge in personal and business bankruptcies in Hawaii began with 1,085 filings in 1991. That figure nearly doubled with 2,022 in 1995, doubling again last year with 4,454.But despite the quantum leaps, Hawaii's bankruptcies are low by national standards.

"Hawaii previously had a very low rate of per capita filings," Lau said. "We're just moving up to something closer to the national average."

Chapter 7 personal filings continue to lead the numbers, with 3,879 cases so far this year, up 35 percent from the 2,864 Chapter 7 filings reported through the third quarter of last year.

One notable decline so far this year is in Chapter 11 business bankruptcies, intended to keep businesses alive by holding off creditors while they reorganize. Just 19 were filed in the first nine months of this year, down 52 percent from 40 in the same period last year.

"Chapter 11 would usually involve an entity that's had commercial obligations and needed a possibility of reworking that," said economist David Ramsour.

Ramsour, who recently moved to Texas but keeps a close eye on Hawaii's economy for clients, said most of the Chapter 7 filings would have been personal bankruptcies or sole-proprietor businesses.

Many of them have been pushed by lenders to pay down their mortgages as lower home prices reduced the value of their properties, or couldn't get home-equity loans for the same reason, he said.