Economy forces many to file for bankruptcy

According to federal Bankruptcy Court, hundreds of financially strapped Hawaii residents continue to file for bankruptcy each month but the rate of growth in cases is slowing. In July there were 345 bankruptcy filings and it was the fifth month in a row that cases surpassed the 300 mark. However, the 28 percent year-over-year rise from July 2009 was the smallest increase so far this year.

Many filing for bankruptcy would not have considered it two years ago, according to Wendy Burkholder, executive director of Consumer Credit Counseling Service of Hawaii, a nonprofit group that provides debt management and credit counseling services.

“In my 21 years of counseling, I’ve never seen people as emotionally distraught as they are now. It’s taking an enormous toll on people – not just on their financial assets but on their relationships, their self-esteem,” she said. Burkholder’s organization is seeing many more middle-class clients than two years ago, when most people who walked through the door were from low- or moderate-income families.

Seeking relief in Hawaii:

• Chapter 7, liquidation, 259 cases in 2010 compared to 208 in 2009, a 24.5 percent increase.
• Chapter 11, business reorganization, 2 cases in 2010 compared to 2 in 2009, no change.
• Chapter 13, individuals with regular sources of income who set up plans to pay creditors over time, 84 cases in 2010 compared to 59 in 2009, a 42.4 percent increase.
• Chapter 15, facilitates the bankruptcy process for an international corporation, 0 cases in 2010 compared to 1 in 2009.
• Total: 345 bankruptcy cases in July 2010 compared to 270 in 2009, a 27.8 percent increase.

Burkholder said an increasing number of people who are unemployed or have been forced into part-time jobs because they can’t find full-time work are seeking credit counseling. In fact, such workers accounted for about 10 percent to 12 percent of the organization’s clients two years ago but now make up 50 percent of its business. “It’s very common to see people who have been out of work for six months, and with some construction workers it's been a year or more.”

The job market will have to improve further before there will be a significant decline in bankruptcy filings, said Carl Bonham, University of Hawaii-Manoa associate professor of economics.  “You would expect them to begin to taper off at some point. That person who was unemployed may have found a job, but they are in such a deep hole, they still may have to go the bankruptcy route,” he said.