Bankruptcy surge in Hawaii signals dark horizon for ’08
Filings increase by 44 percent, which some say is just the tip of the iceberg
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The number of Hawaii bankruptcies jumped this year, a sign Hawaii's slowing economy is starting to hit home, according to local experts.
With only days left in the year, local bankruptcy filings already are up 44 percent compared with last year and are expected to increase in 2008.
Through midday yesterday, bankruptcy filings totaled more than 1,300, compared with 955 last year. The last year the count was so high was 2005, when there were 4,481 filings in advance of a new federal law that made it more difficult and costly to seek bankruptcy protection.
Hawaii attorneys are beginning to see more cases related to properties in foreclosure, though they say the worst is expected to come next year and in 2009, as the global credit crunch makes itself felt here.
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Hawaii bankruptcy cases have jumped 44 percent over last year, and 2008 is expected to be an even busier year with an upswing in mortgage-related filings.
The final tally for 2007 will not be available until Monday night, but local bankruptcy filings through midday yesterday already totaled more than 1,300, compared with 955 last year. There were 4,481 in 2005, when an influx of cases were filed ahead of a new federal bankruptcy law that made it more difficult and costly.
So far this year there have been 1,114 Chapter 7 liquidation bankruptcies, which typically wipe out debt except for certain items such as taxes, alimony and child support. Last year there were 803 Chapter 7 cases.
Chapter 11 bankruptcies, mostly used to reorganize businesses, totaled 15 cases, compared with eight in 2006. Chapter 13 filings -- which typically allow consumers to stop a foreclosure and consolidate their debt in a repayment program for up to five years -- totaled 246, compared with 142 last year.
Hawaii attorneys are beginning to file more cases related to properties in foreclosure, though consumer bankruptcy attorney Greg Dunn said the worst is yet to come next year and in 2009, as the state begins to feel the effects of the credit crunch.
Hawaii's economic slowdown is part of the reason for the rise in bankruptcies, economists say.
"We're at that point where we're going to see bankruptcies, foreclosures and business failures," said Bank of Hawaii economist Paul Brewbaker. "As the growth settles over the next several years, we'll see these measures of economic stress continue to inch upward."
Honolulu bankruptcy attorney Bradley Tamm, who has seen calls to his office double in recent months compared with last year, expects bankruptcy cases to climb to the historical norm of about 3,000 cases per year by the end of 2008 and increase even more in 2009, as the mortgage crisis hits Hawaii.
"The only thing keeping Hawaii from being hit right now is the fact that Hawaii still has positive employment," he said. "People are not doing well. They're hanging on, but 2008 is going to be a busy year."
Many of the weaker players in the market such as small retailers, mom-and-pop restaurants and underfinanced developers will likely close in the next few years, therefore driving up the number of bankruptcies, he said.
"These are the harbingers of bad times," Tamm said. "It's not light at the end of the tunnel; it's the headlights of a freight train coming. We're going to get hit."