Housing fuels bankruptcies

Hawaii's rate soars 30 percent as people struggle to pay bills amid mounting costs for basic items

STORY SUMMARY » | READ THE FULL STORY

Bankruptcies are on the rise in Hawaii, due mostly to a higher percentage of filings related to real estate problems.

The number of statewide bankruptcies jumped 30.1 percent to 890 during the first six months of this year from last year, reflecting tougher economic times.

The annual figure is likely to surpass last year's, when 1,381 bankruptcy filings were recorded.

Although the highest number of filings were Chapter 7 liquidation bankruptcies, a notable spike in Chapter 13 filings occurred in the first half of 2008, preliminary data from the Office of the U.S. Trustee shows.

A total of 706 Chapter 7 cases were filed in the first six months, 23 percent more than last year.

Chapter 13 filings, which allow individuals with a regular source of income to set up plans to pay creditors over time, totaled 178, a 76.2 percent spike from last year.

Honolulu bankruptcy attorney Stuart Ing said his office is handling a volume of at least 50 percent more cases than last year.

---

FULL STORY »

The number of Hawaii bankruptcies jumped 30.1 percent to 890 during the first six months of this year compared with last year, reflecting tougher economic times.

That figure is likely to surpass the total for last year, when 1,381 bankruptcy filings were recorded, given that it already is 64.4 percent of last year's tally at the halfway mark, according to preliminary data yesterday from the Office of the U.S. Trustee.

The largest number of filings are Chapter 7 liquidation bankruptcies, which typically wipe out debt except for certain items such as taxes, alimony and child support.

A total of 706 Chapter 7 cases were filed in the first half of this year, 23 percent more than last year.

Chapter 11 filings, mostly used to reorganize businesses, recorded five cases, a 37.5 percent drop compared with last year. Only one Chapter 12 filing, for the reorganization of the debts of family farmers, was made in the first half of this year, the same as last year.

Chapter 13 filings, which allow individuals with a regular source of income to set up plans to pay creditors over time, totaled 178, a 76.2 percent spike from last year.

Blame it on the drop-off in the housing market, along with the economic slowdown and consumer credit card debt compounded by the higher costs of gas.

Honolulu bankruptcy attorney Stuart Ing said Chapter 13s are traditionally filed for individuals who need to catch up with their mortgages.

"A higher percentage of people filing bankruptcy have real-estate-related problems, much more than two to three years ago," said Ing. "The vast majority are not out of work, but the pay is roughly the same, and we have people who just have too much in credit card debt and loans."

Though Hawaii ranks low in the nation for the number of foreclosures, those numbers continue to climb.

A total of 162 foreclosures -- or one out of 3,087 -- were filed in Hawaii last May, according to the most recent statistics from California-based RealtyTrac, a 25.6 percent increase from May 2007.

But Ing says he believes those numbers are likely higher.

Many Hawaii residents also have investment properties on the mainland, which are facing foreclosure and debt, he said. Some Hawaii residents invested in mainland real estate but had to surrender because they could not generate enough rental income to cover the mortgage or could not sell the properties.

Oftentimes those individuals file for Chapter 7, which also experienced a significant jump this year.

Ing said his own office is handling a volume of at least 50 percent more cases than last year.

However, he said the current numbers are not yet as high as the dramatic jump that occurred in fall 2005, when a new bankruptcy law went into effect, making it harder and more expensive to walk away from debt.

In October 2005, 1,463 bankruptcy filings were recorded, compared with 276 in October 2004, due to the uncertainty created by the new law. The majority of the October 2005 filings -- 1,377 -- were Chapter 7.

Bankruptcy filings today, however, are more related to the real estate downturn, personal debt and the overall slowdown in the economy.

"Our economy is tied to the mainland economy," said Ing. "If the mainland economy doesn't turn around, ours won't either, for at least another two to three years."

Byron Gangnes, co-author of the University of Hawaii Economic Research Organization's quarterly reports, said the bankruptcies are a reflection of the state's general economic weakness.

"Whether you look at foreclosures or bankruptcies, Hawaii continues to do relatively well compared to the nation as a whole," he said. "Having said that, we still will see deterioration here."

Gangnes characterized it as a "shallow but fairly lengthy" economic downturn that will continue this year and next year.

Last year the 1,381 bankruptcy filings represented a 44.6 percent jump over 2006 full-year bankruptcy filings.

The year 2005 set a record high for the past five years, with 4,481 bankruptcy filings in Hawaii.