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Inflation and mortgage rates are on the rise, but many debt-ridden consumers have yet to take the plunge and apply to court for financial assistance.
Bankruptcies, which often represent the last resort for people unable to pay their bills, fell 33% in May to mark the 11th consecutive month that cases were below 100, according to new data released by the US Bankruptcy Court, District of Hawaii.
Last month’s 67 cases were the fewest as there were 57 in February 2006. There were 100 filings in May 2021. Bankruptcy filings have now declined for 13 consecutive months.
Yet it may only be a matter of time before bankruptcies reverse their downward trend and begin to climb. Hawaii ranks second in the nation for average credit card debt at $6,535 per Credit Karma member, according to a recent Credit Karma survey. Alaska tops the list with $7,074.
“The consumer is in no better shape today because of a decline in the value of their retirement plans,” said Honolulu bankruptcy attorney Greg Dunn. “Consumers may have to delay their retirement. The federal stimulus has ceased, most moratoriums have ended, and the courts are wide open. Consumer debt will skyrocket due to rising interest rates and growing inflation concerns, allowing them to continue paying their debts.
Dunn said that while some consumers may be making more money — mostly due to employers having difficulty filling positions — their paychecks haven’t given consumers more buying power in due to rising inflation.
“The current economic landscape will make it difficult for businesses and consumers to stay afloat and the latter part of 2022 could see an increase in bankruptcy filings,” Dunn said.
He said Hawaii residents were using more credit and then consolidating debt with low-interest loans and lines of credit to pay off their debt rather than filing for bankruptcy. Individuals were able to obtain a low-interest home equity line of credit to consolidate and pay off debt, he said.
“Therefore, the consumer is able to manage their debt versus filing for bankruptcy,” Dunn said. “High inflation, rising interest rates and shrinking consumer pension plans have yet to affect most consumers, but will soon.”
Chapter 7 liquidation filings – the most common type of bankruptcy – fell 43.4% to 43 last month from 76 in May 2021.
Chapter 13 filings, which allow people with regular sources of income to set up plans to make installment payments to creditors over three to five years, remained steady at 24.
There were no Chapter 11 filings in May or the prior year period. Chapter 11 filings primarily relate to corporate reorganizations.
Statewide, bankruptcies fell in three of the four major counties in May. Honolulu County filings fell to 47 from 69, Maui County filings fell to 13 from 21 and Kauai County filings fell to one in four. Hawaii County filings remained at six.
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Bankruptcy filings in May fell from a year ago:
2022 2021 pct. CHANGE
Chapter 7 43 76 -43.4%
Liquidation
Chapter 11 0 0 —
Business reorganization
Chapter 13 24 24 0.0%
People with regular sources of income make plans to pay creditors over time
Total 67,100 -33.0%
Source: United States Bankruptcy Court, District of Hawaii
