Business failures
fall 15% in islesBankruptcy filings look to be
at their lowest level in seven years
Hawaii's economy showed signs of strengthening in the second quarter as bankruptcy filings were on track to end 2003 at the lowest level in seven years.
With interest rates at a 45-year low and state unemployment below 4 percent, Hawaii bankruptcy filings fell 15 percent in the first half of the year to 1,994 from 2,347 a year ago and declined 6.2 percent in the second quarter to 1,044 from 1,113.
"That's very encouraging and more or less bears out other numbers we see in the economy," said Leroy Laney, a professor of economics and finance at Hawaii Pacific University. "The total nonagricultural jobs, for instance, were up 2.8 percent through May over a year ago, and it's pretty broadly based across a number of business-sector categories. The economy is actually doing quite well."
Since reaching an all-time high with 5,813 filings in 1998, the numbers have meandered their way downward to 4,479 in 2002. The bankruptcy filings have not been under 2,000 for the first half of any year since 1,352 were filed during the first six months of 1996. The total number of bankruptcies for that entire year was 3,083.
Seasonally adjusted unemployment, which rose slightly to 3.9 percent in May from 3.8 percent the previous month, is considerably below the national rate of 6.1 percent.
"You're looking at a pretty good tourist season, at least on the neighbor islands," Laney said. "The Japanese side is still weak, and Waikiki is not expected to do as well because of the greater reliance on Japan. But if you look at this summer, visitor arrivals on Maui probably will strain the infrastructure of the airport. Kauai and the Big Island also are doing well, too."
Although Oahu visitor arrivals were down 5.9 percent through the first five months of the year, the neighbor islands fared better, according to the Department of Business, Economic Development & Tourism. Maui arrivals were up 8.5 percent, the Big Island was ahead 0.9 percent and Kauai was down 0.5 percent.
Overall, statewide visitor arrivals were down 0.3 percent through May, with Japanese visitors off 13.3 percent and mainland arrivals up 3 percent. For the year, DBEDT is projecting a 0.5 percent increase in total arrivals.
Laney said low interest rates have helped Hawaii's real estate and construction sectors, as well as auto sales and financial institutions.
"Banks don't necessarily make more money in a period of lower interest rates, but there are a lot of fees associated with financing and they've been quite busy," Laney said.
Jerrold Guben, a Honolulu bankruptcy attorney with Reinwald O'Connor & Playdon, said Hawaii also may be faring better than the mainland in bankruptcy filings because of state-mandated employer health insurance.
"People who have done research on the mainland have found that the reason many people file for Chapter 7 there is because of unpaid medical expenses," Guben said. "Here in Hawaii there are fewer Chapter 7 filings because we have a different medical payment system for full-time employees."
Chapter 7 filings, which are the most common in Hawaii, fell 16.8 percent during the first half of the year to 1,738 from 2,089 a year ago and dropped 6.5 percent in the quarter to 258 from 276. Chapter 7 filings involve liquidating the assets of a business or consumer.
"A hospital can't take back a gall bladder operation or reinsert an appendix, adenoids or tonsils," Guben said. "So, as a result, people will file Chapter 7 to discharge their obligations incurred for medical services.
"Everyone assumes credit cards and luxury goods are the main reasons people file for bankruptcy, but on the mainland that's not the primary reason."
Chapter 13 filings fell 4.9 percent in the first six months of 2003 to 234 from 246, but rose 8 percent in the second quarter to 122 from 113. Chapter 13 filings have debt limits and allow a wage earner to pay creditors over a three-year period.
Although Chapter 11 filings are not as common in Hawaii, the biggest one of the year has been from Hawaiian Airlines. Chapter 11 filings, which mostly cover business reorganizations, nearly doubled to 22 from 12 in the first six months of 2003, and more than tripled to 13 in the second quarter from four a year earlier.
