Part 3: It doesn't matter where you look.
People feeling the pinch of hard times are all around.
They're buried in debt. They're succumbing to stress.
They're pulling up stakes.

By George F. Lee, Star-Bulletin
Darley Arbogast waits for work at the Hawaii Carpenters
Union. Unemployed for months, he is considering retirement
at age 61. See story, Page 11

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Epidemic of failure

Bankruptcies in Hawaii are growing
at the highest rate in the nation

By Peter Wagner
Star-Bulletin

"YOU feel you've finally got a piece of the rock -- the dream to own something in Hawaii," said the downcast Kaneohe man. "You feel you've got status, and then someone comes along and just yanks it away from you."

That's bankruptcy.

It's cold. It's hard. It's humiliating.

And it's epidemic in Hawaii.

Personal and business bankruptcies are expected to eclipse 4,000 for the first time this year, just as 3,000 was surpassed last year. It's the fastest increase in the nation, which is swept up in a wave of bankruptcies.

For many, federal bankruptcy court is a sobering last resort. They fall behind on mortgages, lose jobs, or wrestle with medical bills. They descend into divorce, credit abuse or the high cost of living in a comatose economy.

Those who file must list their belongings -- everything from the lamp on the table to wedding rings. They find themselves in a sterile room in front of a federal trustee. They empty their pockets. They tighten their belts.

Many are ashamed and don't want their losses known. Those who spoke with the Star-Bulletin asked for anonymity.

"It's really hard when you have to give up everything you own and start over," said the 37-year-old Kaneohe man, a school teacher with a wife and two children. His recently filed bankruptcy will cost the family's home.

"We're pretty scared. We don't know where the future leads."

The couple filed under Chapter 7 of the federal bankruptcy code -- by far the most commonly used in Hawaii. The procedure liquidates your assets, divides the proceeds among creditors, and allows you to walk away from remaining debts.

Less common but on the increase are Chapter 13 filings, which let you keep your valuables under a supervised plan to repay bills, usually over a period of years. Either way, bankruptcy puts a black mark on your credit record for 10 years.

Chapter 7 lets you keep personal effects that aren't worth selling. For example: a car that isn't worth more than $2,400, jewelry under $1,000 and professional books under $1,500.

But big ticket items, like the $190,000 condo the Kaneohe couple bought two years ago as first-time buyers, often must go.

"My husband feels he failed," said his wife, a 38-year-old caregiver. "It's been harder for him."

They said they fell into trouble after putting down $25,000, their entire savings, on the condo. They learned their mistake when medical bills and other unexpected expenses hit them, and they had no reserves.

Struggling to meet their mortgage, they canceled life insurance and other extras. They tried to get a second mortgage, but were rejected in part because their condo had lost $60,000 in a slumping real estate market. He took a second job; that created new problems.

"He was working at night, which impacted his job during the day," said the man's wife. "He was tired, irritable and it just wasn't worth it. Everybody was yelling and flying off the handle. I just said: This is it -- we're not going to continue to live like this."

'Terrible, terrible economy'

Bankruptcy is on the rise nationwide. Last year's total of 1.1 million filings is expected to reach 1.2 million by the end of this year -- 10 percent of them in Los Angeles.

While the number of bankruptcies in Hawaii is low by national standards, the rate of increase here is the highest in the country. We've gone from 761 bankruptcies in 1981 to 1,995 in the first half of this year.

"The troubling thing is the numbers have gone up each quarter for the last 10 quarters," said Gayle Lau, assistant trustee of the U.S. Bankruptcy Court in Honolulu. "This quarter should break 1,000."

He notes that bankruptcy, once mostly for the young, has moved into middle-class neighborhoods where families losing jobs to mergers or the economy can't keep up with mortgages.

Attorneys, debt counselors and others involved say Hawaii's bankruptcies are a clear sign of tough economic times.

"What's happening is I've seen a terrible, terrible economy," said Remy Luria, a Honolulu bankruptcy attorney. "What it's doing is putting businesses out of business and making people poor."

But the bankruptcies are just the tip of an iceberg, Luria said. "It's only a small percentage of a much larger group of people that's been struggling with their debts for years."

Credit counselor's business is booming

Charles Crawford, executive director of Consumer Credit Counseling Service of Hawaii, has seen a sharp increase in people needing help paying their bills in recent years.

"Our business has grown between 25 and 30 percent per year over the last six or seven years," he said. "That has a lot to do with economic conditions."

More than a quarter of his clients, representing a spectrum of society, fell into debt after losing a job or suffering a pay cut.

"If you just walked down the streets of Waikiki and picked out every fifth person, you've got it," he said.

"We run the gamut from unemployed people to lawyers."

One recent victim, a 62-year-old Kailua man, is living on a tight budget after losing his home to foreclosure and filing bankruptcy. It hasn't been easy.

"It's something that's uncomfortable to do because you have a lifestyle that's being disrupted," he said. "But it's something you can't avoid. There's no point crying over spilled milk."

His small business, which grossed $1 million in 1990, plummeted to under $300,000 last year as business slowed and clients defaulted on bills.

"It seems to be a domino effect," he said. "Some of the people we work for aren't able to collect from their clients, so they don't pay us. It's a problem we've always had, but it's never been this acute -- just in the last two or three years."

Meanwhile, he's looking for new work.

"But any field you find in Hawaii is difficult right now because of the economy," he said. "We're in the air purification business, but people can't afford the systems, as a rule."

In Kihei, Maui, a couple recently closed their restaurant after business dried up because of the grounding of charter carrier Rich International Airways last year.

"We had to tell people we had to let them go, and that's never easy," said the 49-year-old former owner and wife. "We had a lady working for us who is 63 years old. She was terrified when it closed. We had a lady waitress who has five kids."

But, like others who go through bankruptcy, the Kihei woman is relieved to be on the road to a fresh start.

"It's worked out for the best," she said. "It's an opportunity for change. It's either that or sit in a corner and quiver."

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