Cole asked: While there’s no simple equation that would allow borrowers in Hawaii to figure out whether or not bankruptcy protection would be a proper fit for their own family, any consumer who finds him or herself struggling to afford the minimum monthly payments from their credit cards should at the least see what other options are available. For that matter, Hawaiian debtors who have looked at their assembled bills with a realistic and clear eyed appraisal only to discover that their household capacity for gross income in the next few years put against the family cost of living expenses and utility obligations would not allow for the elimination of the total debt load must seek out the professional services now available throughout the islands. While your authors appreciate that many of the hard working men and women of Hawaii will do everything possible to pay back the loans that they have lawfully taken out in good times and bad, waiting until the last moment in the vain hopes of some mystical deliverance from crushing financial burdens will only end in heart ache and household economic instability. Like it or not, consumer credit is a fact of life in Hawaii and most everywhere across the United States, and that is why America first initiated bankruptcy protection: to offer borrowers a fresh start. Unfortunately, Chapter 7 bankruptcy in Hawaii no longer provides the same guarantees following the congressional legislation and subsequent alterations of the bankruptcy code that occurred in the fall of 2005, and many of the borrowers that fought until their last breath to right their household budget without employing high priced debt professionals only to inevitably decide upon bankruptcy protection as what they believed to be their final alternative came to find out far too late in the debt relief game that there were far more effective programs at hand. Within this article, we will explain a bit more about what personal bankruptcy protection now means to the Hawaiian borrower and what options may provide a less disastrous solution to spiraling financial obligations.
As most Hawaiian residents already know, a good portion of the average citizen’s debts would not be able to be affected by governmental bankruptcy protection. Alimony and child support and other familial debts are – and, we would agree, should be – essentially removed from all bankruptcy actions, and the same could be said for tax liens and penalties that came about as the consequence of criminal proceedings. Cash advances above eight hundred dollars that were taken out less than three months from the moment that the borrower files his or her papers run the risk of being considered fraudulent by the Hawaiian courts. Purchases of luxury goods above five hundred dollars that were taken out less than ten weeks before the time of filing face similar risks, but, obviously, there’s a good deal more leniency given the right bankruptcy attorney. Student loans, though they would seem superficially to be the same as medical bills or credit card accounts or any other unsecured debt burdens, are similarly rendered immune to bankruptcy protection after a congressional dictum from the mid 1990 (at a time when, according to some studies, a majority of the United States representatives had defaulted upon at least some portion of their own educational loans), but they tend to feature the lowest interest rates and easiest tax deductions this side of home mortgages upon primary residences. Those mortgage loans – as well as vehicle loans or any other secured debt – must be formally reaffirmed before a Chapter 7 bankruptcy could proceed (the reaffirmation meetings are generally held over the phone and should largely be considered a formality), and, in the event of a Chapter 13 debt restructure program, they may be forcibly refinanced to indulge easier payments and preclude foreclosure and forbearance which, given the sad state of Hawaii real estate during our national economic crisis, has become an all too real threat for citizens throughout our state.
Chapter 7 debt relief bankruptcy is the oldest of all of the American bankruptcy protections, and it is still the only sort of bankruptcy that a surprisingly large portion of Hawaiians genuinely recognize. By this point in modern society, with the proliferation of credit so wide spread, there are a number of different programs meant to specifically protect everyone from family fishermen to actual cities and municipally controlled utilities, but the Chapter 7 system remains the emblem of what most people think of to be bankruptcy. Within the Chapter 7 debt liquidation program, individual consumers or married couples ask a trustee randomly selected by the Hawaiian courts to discharge all of their unsecured debts after a period of analysis that generally lasts about six months: with the recent boom in personal bankruptcies following the down turn of the Hawaiian and greater American economy, the time period may take a bit longer. Of course, nothing comes for free, and the consequences of Chapter 7 debt elimination could actually put the filer’s household in a worse situation than was previously felt. The negative repercussions of bankruptcy shall remain on the borrowers’ credit reports for up to ten years and – despite the sudden eradication of their unsecured burdens – could actively prevent the parties who are declaring Chapter 7 from home mortgages, vehicle loans, and even employment opportunities and security clearances. Much as the Chapter 7 bankruptcy alternative could erase past mistakes and forgive those debts helplessly drawn after familial tragedy, one should not necessarily think of the program as the fresh start our grandparents may have enjoyed. Credit reports are simply too important for ordinary Hawaiian consumers to disregard, and the FICO scores issued by the three primary credit bureaus (Equifax, TRW, and TransUnion) have a disproportionate effect upon Hawaiian families that some times barely understand the calculations involved.
To be sure, for some borrowers in Hawaii who have weathered lingering bouts of unemployment and have few to none assets worth preserving, Chapter 7 bankruptcies do still serve a purpose. Unfortunately, after recent legislation, the perennial guarantee of Chapter 7 bankruptcy protection and the eternal promise of household rebirth following bankruptcy no longer applies to every resident of Hawaii. As of October 17, 2005, several changes were made to the United States bankruptcy code under the Bankruptcy Abuse Prevention and Consumer Protection Act. This bill – propelled by creditor funded political action groups and sped through the U. S. Congress during a period of economic expansion with a shameful absence of media news coverage and analysis – utterly changed the parameters and liberties formerly to be considered the birthright of every Hawaiian. After the passage of BAPCA, the amount of documentation required for filing increased greatly along side the potential penalties should interested borrowers simply forget to record an essentially worthless asset or trifling bit of income. The exponentially larger penalties for fraud (or, at least, what the new federal bankruptcy code defines as fraud) were set into law just as the amount of latitude granted the Hawaii court trustee who would actually look over the debtor’s individual case was severely weakened. This heightened threat from the court system and the greater complexity of the paperwork involved with each sort of bankruptcy protection virtually demands the aid of reputable bankruptcy attorneys who have had a good deal of familiarity with both Hawaiian statutes and the national bankruptcy code.
Tragically, as the country’s economy continues to falter and more and more Hawaiian consumers beset by out of control debt feel (for right or wrong) that they have no recourse left but bankruptcy protection, the services of experienced law firms have grown harder for every Hawaiian borrower to employ and the fees that such firms feel acceptable to request have developed accordingly. Along with the administrative charges that each Hawaiian consumer will have to pay through money orders when filing their bankruptcy petition with their local county clerk, the Bankruptcy Abuse Prevention and Consumer Protection Act now necessitates that every borrower who intends to take advantage of Chapter 7 or Chapter 13 bankruptcy programs will be forced to take a course on debt management before declaration and again before balance discharge. Not only do these costs – above and beyond the sweat equity uselessly demanded of consumers likely already strapped for time; this is particularly true for Hawaiian residents who do not live within a reasonable distance from one of the handful of course counselors certified by the federal government – may already preclude many of Hawaii’s most disadvantaged citizens from employing the bankruptcy protection they so sorely need.
More troubling, following the 2005 passage of BAPCA, Chapter 7 protection became far more difficult for ordinary borrowers with a solid work history to enter and considerably more threatening for those Hawaiian consumers that successfully argue for Chapter 7 eligibility to endure. The United States bankruptcy code currently insists that any borrower formally residing in Hawaii must earn less than the median income of every head of household in the state as determined by the most recent census figures. This means that single wage earners who have a demonstrable gross income above forty seven thousand (sixty thousand for a Hawaiian household with two members; seventy thousand for a household with three members; eighty five thousand for a household with four members) in the year prior to filing for bankruptcy will find it very difficult to eliminate their collected debts through Chapter 7 protection no matter how great their burdens. If the borrower does find that they still make more than the median earnings of Hawaiian residents, there’s a slim chance that they could still convince the court trustee that (once all monthly utility bills, household expenses, and secured credit accounts are taken into consideration) they would be less than able to come up with one hundred dollars every month for a period of five years – six thousand dollars all told – and they may then be allowed Chapter 7 debt elimination. This “means test” has become far more arduous, though, since the Internal Revenue Service has outlined the costs of living for Hawaiian households with, once again, virtually no wiggle room allowed the Hawaii judge actually studying the borrowers’ financial budget, and, as consumers should presume, the IRS estimates are comically low compared to the realities of many debtor families who happen to live in the more expensive areas of Honolulu or Maui or other premium sites in Hawaii.
Even for those supposedly fortunate Hawaiian consumers that manage to pass through the ever tighter gates toward Chapter 7 debt elimination, there will still be unintended consequences as a result. In the years before the BAPCA legislation was passed, debtors in Hawaii who held significant assets knew that their most high priced possessions could potentially be seized for auction by agents of the Hawaii courts. However, average consumers – since they would only need to list their personals goods by the potential resale value – did not have much to worry about. Nowadays, as yet one more aspect of the damage to the United States bankruptcy code following the 2005 legislation which every Hawaiian consumer thinking about the Chapter 7 program must recognize, borrowers have to compile an exhaustive register of virtually every thing that they own because the items will be valued according to their potential replacement costs. Hawaiians declaring bankruptcy protection are a bit more fortunate on this point when compared to their countrymen. Local statutes designed by the Hawaiian legislature offer a different slate of exemptions with which borrowers can attempt to safe guard their most prized objects. There are still no guarantees for many household furnishings as well as family heirlooms or similarly important objects, but, compared to the minimal exemptions guaranteed by the federal government, they should be considered highly desirable indeed.
Under the Hawaiian homestead exemption, any real property of one acre or less should not be worried over unless there’s a great deal of equity (the precise amount protected will depend upon the borrower’s age), and the household furnishings – which for the Hawaiian statutes shall encompass everything from coffee machines to books and record albums to clothing and jewelry – are protected up to one thousand dollars in total; married couples should double this and most other Hawaiian exemptions. The exemptions also cover a single automobile with a blue book value of less than twenty five hundred, family burial plots along with associated structures (grave stones, monuments, etc), and the filers’ so called tools of trade: physical implements, uniform, commercial library, and vehicles such as cars and boats that could be proven to be necessary for the borrowers’ employment. Workman’s comp, disability payments, unemployment benefits, certain types of retirement plans, life and health insurance takings, and any wages earned but not yet collected by Hawaiian borrowers shall also be taken care of. Once again, when set aside the puny exemptions that have been erected by the national government, Hawaiian debtors thinking about Chapter 7 debt elimination bankruptcy are remarkably fortunate, but, when the family must decide whether to protect their couch or their wedding ring, that may seem to be cold comfort.
The bankruptcy protections that generations of Hawaiian families have depended upon have changed, utterly, and borrowers concerned about their debts should not walk blindly into bankruptcy declarations (or, for that matter, pay the extravagant sums requested by reputable bankruptcy attorneys licensed in Hawaii) without a journey of discovery that takes into account all of the various debt relief alternatives blossoming in the absence of effective bankruptcy solutions. Despite their advertisement fueled popularity around an irritatingly large percentage of Hawaiian residents, Consumer Credit Counseling companies have fallen under suspicion now that most borrowers understand that the approach has been virtually subsidized by the credit card companies for years. Beyond anything else, Consumer Credit Counseling notations look rather worse than even bankruptcy upon credit reports and FICO scores while the system charges borrowers up to four figures for little more than a temporary drop in interest rates. Also, the Consumer Credit Counseling method has the same essential flaw as secured debt consolidation loans – artificially lowering payments by extending the terms of the obligation only means that compound interest (even a relatively low rate of interest) has more time to raise balances – although consolidating consumer debt at the expense of home equity has potentially far more dangerous consequences for home owners: particularly given the current real estate value free fall.
For the right sort of borrower, any of these debt management alternatives (even Chapter 7 bankruptcy protection, weakened as the current program may be) could actually seem like a reasonable maneuver, but, when we have talked to the consumers around Hawaii that have found the most success in their attempts to liquidate unsecured debt loads, the approach that comes up time and again is debt settlement negotiations. Under the debt settlement plan, trained and certified debt analysts speak on the borrower’s behalf with credit card representatives and – through a combination of threats (since bankruptcy and the potential liquidation of all unsecured loans always remains a possibility for Hawaiian borrowers) and promises (most debt settlement companies with the best track records ensure that their clients pay back the remaining balances in less than five years) – the debt settlement negotiator will cut their clients’ debt load by as much as sixty percent. The debt settlement strategy comes with its own costs, of course, and nothing looks quite as good on a credit report as paying back the loans in a traditional manner. For that matter, since not all lenders are equally amenable to the settlement option and since many of the borrowers would sadly be unable to repay even a fraction of their collected credit card bills in a timely fashion, many Hawaiian consumers would not even be accepted into the settlement program. However, given the problems with bankruptcy that we have illustrated earlier in this article, any Hawaiian borrower worried about their bills should certainly take the time to examine the alternatives. Unlike the time spent meeting up with bankruptcy attorneys, there will be generally little if any money requested from the settlement professionals for an initial consultation, and many of our Hawaiian correspondents reported great success even from internet companies that better suited their distant location or harried schedule. The settlement solution isn’t for every Hawaiian debtor, it will not offer the fresh start Chapter 7 bankruptcy once promised, but, presuming borrowers have examined all of the alternatives, it should be well worth the time to take a look.
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