Filing for bankruptcy can be a difficult challenge for any person or family in the United States. Some states, due to their location or state laws, can make filing for bankruptcy even more challenging. While federal laws for bankruptcy apply to all of the states, every state is different in what exemptions may apply for individuals who file for bankruptcy. Additionally, location-based needs and opportunities can impact a person’s road to bankruptcy. One of the states that have the most unique factors for individuals seeking to file bankruptcy is Hawaii.
Prevalence of Bankruptcy in Hawaii
The rate of bankruptcy filing in Hawaii is actually fairly low in comparison to other states in the U.S. On average, within the last year, somewhere between ten and 20 people out of every hundred thousand filed for some form of bankruptcy, whether it was categorized as Chapter 7 or Chapter 13. This means that Hawaii falls within the five states that have had the fewest bankruptcy filings per capita this year.
Causes of Bankruptcy
There are a number of reasons why residents in Hawaii might file for bankruptcy. The greatest cause of bankruptcy, not only in Hawaii but across the nation, is for expenses owed for medical procedures. Nearly half of those affected by bankruptcy had, at least some medical debt, and of those, over three-quarters of them had medical insurance.
A second major factor in filing for bankruptcy is the loss of a job. In a state like Hawaii, jobs may be more specialized or limited than in other areas of the country. It can also be harder for Hawaiians to move for their work.
Other top factors for bankruptcy in Hawaii are overspending or living beyond one’s means, fees and payments associated with divorce, natural disasters, attempting to avoid having a home foreclosed on, and a lack of savings to assist with the above issues.
Chapter 7 Bankruptcy
There are four primary kinds of bankruptcy available to Hawaiians, each named for a section of the bankruptcy law. One of the most common kinds of bankruptcy in Hawaii is called Chapter 7 bankruptcy. Under Chapter 7, Hawaiians who make less than a certain amount of income per working family member can file to have a majority of their debts erased.
Under this law, individuals work with someone called a trustee, who is responsible for selling some of the individual’s assets to assist them with paying off their creditors. The income limits that apply to individuals seeking to file Chapter 7 bankruptcy are based on median incomes in the state and the size of the individual’s family.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is another common way to file in Hawaii. Under Chapter 13 law, Hawaiians can file to reorganize their finances and to put a strategy in place to repay debts in small, manageable increments over a particular length of time.
The length of time allows to make repayment varies based on the filer’s income, although a judge may adjust the time given at their discretion.
Other Kinds of Bankruptcy
There are two other kinds of bankruptcy filings that are less common, but are available to people in Hawaii. The first is called Chapter 11 bankruptcy and is most often used by businesses or individuals who have a substantial amount of outstanding debt. Chapter 11 bankruptcy is similar to Chapter 13 in that it allows the filer to reorganize their assets to attempt to pay their debtors.
A final kind of bankruptcy is called Chapter 12 bankruptcy. This type is only available for those who qualify as family-owned farmers.
Hawaiian Exemptions for Bankruptcy
Hawaiian state law outlines the kinds of personal assets that are considered to be “exempt” from consideration within the bankruptcy filing. This means that these assets are protected from being seized or sold to creditors. There are strict value limits attached to these assets and also applies to any amount of equity that is held in a particular asset.
When a married couple is jointly filing for bankruptcy, each is allowed to submit their own set of requested exemptions, which may be helpful for their household.
The kinds of assets covered in these exemptions may include:
- A portion of the value of a homestead
- Insurance or disability benefits
- The assets owned in partnership of a business
- Certain qualifying pension plans
- Any furniture or appliances which could be deemed necessary
- One vehicle up to a certain limit
- Jewelry or accessories up to a certain value
- Social benefits from programs like unemployment or workers’ compensation
- Tools required for performing tasks related to one’s livelihood
- And other specific exemptions
For each of these exemption categories, there are particular rules about what can and cannot be exempted and/or what amount of the value can be exempted.
It is also important to note that individuals or families must have lived within the state of Hawaii for a minimum of 91 days to be able to file for a Hawaii bankruptcy. If they have been a resident for less than two years, additional limitations on exemptions and how they apply may be in effect.
First Steps for Hawaiians Facing Bankruptcy
The first step to dealing with bankruptcy is to get in touch with a licensed professional who is familiar with the Hawaiian bankruptcy laws. This can be very helpful for families who are dealing with the prospect of filing for bankruptcy because a knowledgeable professional can provide guidance about the best way to file for a particular family, how to protect the right assets by using exemptions properly, and can offer support and resources that assist families throughout the process.
Filing for bankruptcy can help families who are caught in a cycle of debt and are facing seemingly insurmountable challenges. Filing allows individuals to stop harassment from creditors while they get their financial affairs in order. It can also ensure that certain vital assets are protected, allowing families to maintain reasonable transportation and housing while they look to reset their finances.
Dealing with the Aftermath of Bankruptcy
Even though it can be difficult to deal with bankruptcy and filing can affect the short-term financial future of your family, its effects are not permanent. There are, however, a number of adjustments that you’ll need to make after you file. Individuals who file for bankruptcy in Hawaii should be aware that their credit may be affected for 7-10 years, during which time any new potential creditors will be able to see your bankruptcy history on your credit reports.
When filing for bankruptcy, it is important to address the factors that led to the need to file in the first place. By getting in touch with a financial planner or consultant that you trust, you can ensure that you put the right practices together in your life to be able to weather financial storms that may come in the future, while repairing any problems that may have arisen from your lifestyle or spending habits.
Bankruptcy in Hawaii is not the end of a family’s financial journey. It exists to help families get back on their feet when they are financially overwhelmed and to have a chance to get their finances back in order.