Bankruptcies continue apace


POSTED: Saturday, August 01, 2009

Statewide bankruptcy filings continued at a relentless pace in July, jumping 70 percent over a year ago.

Retired bankruptcy attorney Dawn Smith, who is doing loan modifications and reverse mortgages, said many Hawaii residents are struggling with their mortgages and eventually are throwing in the towel and filing for financial protection.

“;It's just a huge percentage,”; said Smith, who shares an office with bankruptcy attorney Stuart Ing. “;I've never seen this many homeowners come in before. They've been using their credit cards to keep their mortgage payments up, and they may have a lot of credit cards.”;

There were 267 filings in July, compared with 268 in June and 157 in July 2008, according to preliminary figures from the Office of the U.S. Trustee.

For the first seven months of the year, statewide bankruptcy filings were up 66.6 percent to 1,743 from 1,046 a year ago.

Chapter 7 liquidation cases, the most common type of bankruptcy, jumped 68 percent in July to 205 from 122 a year ago.

Chapter 13 filings, which enable people with regular income to pay creditors over time, rose 68.6 percent to 59 from 35.

Attorney David Farmer and Dane Field are the only Chapter 7 attorneys in the state until Richard Yanagi comes on board in September, and Farmer said yesterday their dockets are so full that they have to work seven days a week to keep up with the volume.





        Statewide filings over the past 12 months:


July 2009267
June 2009268
May 2009250
April 2009251
March 2009270
February 2009226
January 2009208
December 2008223
November 2008215
October 2008197
September 2008209
August 2008187
July 2008157
June 2008163
Source: Office of the U.S. Trustee



“;We can really feel the numbers,”; he said.

Farmer said the collapse of the economy and, more specifically, the tourist industry are to blame for the influx of filings.

“;Every dollar that comes into the state trickles down into unrelated businesses,”; he said. “;I have a client who's a debtor of Aloha Airlines and Hawaiian Telcom, and so the secondary vendors for the big guys like (now-defunct) Aloha Airlines and (Chapter 11 bankrupt debtor) Hawaiian Telcom are starting to feel it.

“;Plus, the hotels are laying people off, and people are losing their jobs and the mortgage brokers are upside down.”;

Smith said along with Ing that they have been able to get homeowners loan modifications by using the bankruptcy court.

She said if a house is worth less than owed on it and part of the debt involves an unsecured second or third mortgage, then a Chapter 13 bankruptcy filing helps people strip out that second or third lien, and they can get a loan modification on the first mortgage.

“;It allows them to get rid of a huge amount of debt and keep their house,”; she said.

Smith said she doesn't see the increasing bankruptcy trend reversing until at least 2011.

“;Who knows what's really getting better?”; she asked. “;Unemployment is continuing to rise, and California and Hawaii are trying to downsize—even the government. There's a hiring freeze in every company.”;

One has to look no further than the business in which Smith is now specializing.

“;The loan modifications business is going great guns,”; she said. “;What does that say?”;

Farmer said he's seeing cases in record numbers.

“;We see people who you never expected to see in Chapter 7,”; he said. “;We're seeing the human face of it.”;


Bankruptcy filings in July increased from a year ago:

 20092008PCT. CHANGE
Chapter 7205122+68.0
Chapter 1120——
Chapter 135935+68.6
Chapter 1510——

Chapter 7: Liquidation

Chapter 11: Business reorganization

Chapter 13: Individuals with regular source of income set up plans to pay creditors over time

Chapter 15: U.S. adoption of case brought in another country

Source: Office of the U.S. Trustee