Hawai'i bankruptcy filings rose 11 percent in 2001

By John Duchemin
Advertiser Staff Writer

More than 5,000 Hawai'i residents and businesses sought bankruptcy protection in 2001, pushing the number of filings to the third-highest year on record as financial troubles reached the crisis point for many after the Sept. 11 terrorist attacks.

The number of bankruptcies in Hawai'i rose 11 percent this year to 5,025, according to statistics available yesterday at the U.S. Bankruptcy Court in Honolulu. Yesterday was the last day the court was open for the year.

The increase marks another year of spiraling bankruptcies in the state and coincides with a nationwide increase in bankruptcies, increases in consumer credit debt, slowing economic growth in Hawai'i and stagnating incomes.

The number of bankruptcies in the Islands has risen from about 150 a month in 1994 to more than 400 a month in 1998 and 1999. Only last year, as the economy improved, did the trend reverse — but bankruptcies picked up this year as the economy slowed.

Still, experts note that this year's increase is less than the national rise of about 17 percent and Gayle Lau, assistant U.S. bankruptcy trustee, said Hawai'i's filings are surprisingly low given the blow suffered by the state's tourism industry after Sept. 11.

That may be partly because many lenders and landlords are trying to be flexible with struggling borrowers and tenants, said Marvin Dang, a Honolulu lawyer and foreclosures specialist.

Foreclosure sales of seized assets haven't appeared to increase much since Sept. 11. According to state court statistics, court foreclosures were actually down 12 percent for the year through Nov. 30. Unofficial out-of-court foreclosures are flat, Dang said.

But with thousands of Hawai'i families and businesses still facing financial crises, and unemployment rising, bankruptcies will probably rise again in 2002 as debts pile up, several observers said.

The state estimates that since Sept. 11, more than 39,000 new claims for unemployment have been filed as workers, the majority of them in tourism-related industries, have lost their jobs or had their hours cut. The state's jobless rate rose to 5.5 percent in November, the highest level in more than two years.

Since Sept. 11, many people seeking bankruptcy protection have been employees in the tourism or airline industries, particularly those who worked for firms catering to Japanese tourists, some attorneys said yesterday. While overall visitor arrivals in the Islands are down, the Japanese market has been particularly hard-hit. Arrivals from Japan are still 30 percent to 50 percent off last year's levels, according to state statistics.

"Any time you have higher unemployment, you'll get more bankruptcy," said Dawn Smith, a Honolulu bankruptcy attorney. "Even if people get jobs after four or five months, they're still hopelessly behind. They get cash advances on credit cards to pay their bills, and it just gets worse and worse."

Experts also note that bankruptcy filings don't always necessarily follow economic trends — a growing economy can often trigger financial failures as people overspend. But Hawai'i's grim economic environment and outlook is likely to lead to even more bankruptcies in the next few months.

As in past years, experts said they expect many bankruptcies in the first few months of the year as people grapple with holiday bills.

"These are your basic people who work 40 hours a week, or 60 with two jobs, who are unable to pay because they've been laid off or their spouses have lost their jobs," said Greg Dunn, a Honolulu bankruptcy attorney who handles several hundred cases a year.

Dunn also said creditors and debt collectors have begun stepping up collection policies — despite pleas from Gov. Ben Cayetano and other officials to go easy on those burdened with debt.

"For about three weeks after the 11th, creditors backed off," Dunn said. "But now they're back to collecting money."

Correction: An earlier version of this story gave the wrong first name for lawyer Marvin Dang.