Bankruptcies lowest
since 1996

Riding the rising tide of Hawaii’s
economy, fewer people declared
financial insolvency in 2004

Hawaii bankruptcy filings tumbled 18 percent in 2004 to their lowest level since 1996 thanks to a strong state economy and the financial cushion created by soaring real estate values.

By the end of the business day yesterday, the number of filings had fallen to 3,103 last year, compared with 3,780 in 2003.

"It's yet another sign that our economy is doing extremely well," said Leroy Laney, professor of economics and finance at Hawaii Pacific University, who cited ongoing booms in the key visitor, construction and real estate industries.

"You'd be hard-pressed to find any broad-based negative in the economy right now," he said.

Except for hiccups caused by the tech industry implosion and 9/11, bankruptcies have declined steadily since the late 1990s, when the state economy bottomed out.

Hawaii bankruptcies peaked in 1998 at 5,811. They fell to 5,409 in 1999 and 4,525 in 2000 before jumping 11.2 percent to 5,033 in 2001.

Over that same span, bankruptcy numbers nationwide have swelled.

But in another potentially encouraging development for the state, nationwide bankruptcies in the 2004 fiscal year declined for the first time in five years. There were 1.61 million bankruptcy filings in the 12 months ending September 30, compared with 1.66 million a year earlier.

Laney warned that bankruptcy filings are normally a "lagging indicator" of economic activity and that the U.S. economic recovery lost steam after beginning 2004 strongly. But he said lower mainland bankruptcies are a welcome sign.

"That could be doubly good for Hawaii if they're dropping both here and on the mainland," Laney said, as Hawaii benefits from a stronger mainland economy.

For calendar 2004, Chapter 7 filings, in which a debtor agrees to have certain property and other assets sold off to pay creditors, dropped 17.8 percent to 2,716, by late yesterday, compared with 3,305 in 2003.

Chapter 11 filings, for business reorganizations, slipped 19.2 percent to 21 from 26, and Chapter 13 bankruptcies, which allow individuals to work out a repayment plan with creditors, dropped 18.9 percent to 364 from 449 in 2003.

Rising property values in Hawaii were likely a factor in 2004's lower bankruptcy numbers, said Gayle Lau, an assistant U.S. bankruptcy trustee.

"That's given a lot of people the ability to sell at a profit or to refinance at lower interest rates. That's been a key for many people," he said.

Laney said the outlook for bankruptcies remains bright as the state's economy chugs into 2005 with a full head of steam, though scarce labor due to a 13-year-low jobless rate could be "something of a drag".

"It's supply constraints like that which could slow things down more than anything," he said.

However, he said Hawaii's economy may end up attracting sufficient amounts of labor from outside the state, as happened during the 1980s.