The thought of filing for bankruptcy can be frightening. It carries such stigma in our society, yet nearly one million bankruptcy filings occur in the U.S. each year. A job loss, medical expenses, seriously overextended credit, marital problems, and other unforeseen reasons can leave you financially overwhelmed..

When you find yourself sinking, it may be time to take action. If your credit card payments and monthly bills exceed your income, if you have exhausted your other options, if credit counseling and debt consolidation aren’t enough, voluntary bankruptcy may be a viable option. It can help you get back on your feet and give you a fresh start. 

Still, you have so many questions: 

  • What happens when you file bankruptcy in Hawaii?
  • Do I qualify?
  • Is Chapter 7 or Chapter 13 right for me?
  • What information will I need?
  • Where do I file?
  • What is the process once I’ve filed?

Bankruptcy in Hawaii is complicated, but our government has laws in place to protect both your creditors and you. Still, if you’re considering bankruptcy, it’s crucial to know what your options are. 

What Happens When You File Bankruptcy in Hawaii?

A common misconception about bankruptcy is that it means losing everything. This isn’t always true. Voluntarily filing for bankruptcy won’t exempt all of your assets, but it will protect many of them. How much property you are allowed to keep will hinge on the type of exemption you use. 

An alternate misconception about bankruptcy is that it wipes away all of your debt and financial responsibility, and allows you to keep all your assets. This isn’t true either. While bankruptcy allows you to waive some of your debts, and possibly keep some of your assets, you don’t automatically get to wipe away everything you owe. 

Bankruptcy means that you will be granted an Automatic Stay once you file, which gives you some breathing room while you and your court-appointed trustee sort things out. While the stay is in place, they can’t garnish your wages, deduct money from your bank account, or go after any secured assets. 

In the long run, some of your debt may be forgiven or cancelled entirely, and depending on the type of bankruptcy you file, you may be able to keep your home and some of your assets.  This is the good news. 

Here’s the bad news: Bankruptcy is a last resort for a desperate situation. There are negative consequences to factor in your decision-making. Bankruptcies remain on your credit report from seven to ten years. Your credit score will plummet downward. And most likely, the higher your score, the harder the fall. 

Like we stated above, some debts will not be discharged and you will remain responsible for them. You will likely still owe on things like alimony, child support, divorce-related debts and property settlements, tax debt, student loans, civil court settlements, and debts for criminal restitution.  

How Do I Know if I Qualify for Bankruptcy in Hawaii?

First, you must be a resident of Hawaii for at least 90 days before being eligible to file for bankruptcy. 

Federal law governs bankruptcy filings, but some aspects of Hawaii’s rules and laws apply as well. Since Hawaii has wage and exemption standards that are different from other U.S. states, your options may also be different. 

Second, the 2005 Bankruptcy Act mandates all individuals who wish to file must complete credit counseling with an approved provider six months before bankruptcy relief and must undergo a financial management course after filing in order for debts to be discharged. Approved providers for the state of Hawaii can be found on the U.S. Trustee website under “Credit Counseling and Debtor Education“.

Third, those filing bankruptcy must meet income requirements determined by a “Means Test”. Your debt to income ratio will be analyzed to determine what type of bankruptcy you may qualify for. The courts will consider how your income for the previous months compares to the median income for Hawaii.

The median amount is periodically adjusted, and family size is factored in, but it is currently around $77k. If your family income is below the median income for Hawaii, you automatically qualify for Chapter 7. If your income exceeds the median income for Hawaii, you may still qualify after subtracting pre-set expenses.

If you don’t quality for Chapter 7, the Means Test can help you determine your monthly payments for a Chapter 13 instead. You can find the financial guidelines and median income information on the U.S. Trustee website

The Difference Between Chapter 7 Bankruptcy and Chapter 13

The two basic ways to file bankruptcy are Chapter 7 and Chapter 13. Each has its pros and cons. 

Chapter 7

Chapter 7 is sometimes called “straight bankruptcy”. Your assets are liquidated to satisfy your creditors as much as possible. This does not usually mean your primary property (house, car, household items), though be aware that with Chapter 7 it is possible to lose everything. However, Nolo says, “If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property— which means that you get to keep it, even though it is nonexempt…” 
After a court meeting with your creditors, your appointed trustee will determine what will be liquidated. This means you will be required to surrender it or pay its equivalent cash value to settle your debt.

Chapter 7 bankruptcies are complete within a few months. You will receive a notice of discharge once the court is satisfied, but the record of your bankruptcy will stay on your credit report for ten years.

Chapter 13

Chapter 13 is referred to as a reorganization bankruptcy. The court and your trustee will set up a payment plan to repay your debts, based on your income to debt ratio.

A Chapter 13 bankruptcy allows you to pay off your debts over the next three to five years, and in turn, you get to keep your assets. Some debts will be reduced, others must be paid in full. Chapter 13 allows someone with a secure income to restructure the owed debt. The repayment goes to the trustee each month who, in turn, pays off the creditors according to the payment plan.

What Information Will I Need to File in Hawaii?

Once you decide between Chapter 7 or Chapter 13, you will need to gather paperwork to fully disclose your financial situation. The official forms you will need can be found on the U.S. Courts Form webpage

You must  itemize your current sources of income, financial transactions for the last two years, living expenses, secured and unsecured debts, and all assets and property. You will need deeds, titles, documentation, and income tax returns for the previous two years.

Next, take inventory all of your liquid assets like stocks, bonds, savings accounts, real estate, retirement funds, etc. Be thorough and give a value to each one. Then itemize your bills, debts,  and credit statements. 

Once you have filled out and gathered all this information, you will file this paperwork packet (your schedules) in the Hawaii bankruptcy court along with your credit counseling completion certificate and filing fee. 
Once your paperwork is filed with the bankruptcy court, the automatic stay immediately takes effect. Creditors must cease activity. They are no longer allowed to proceed with foreclosures or contact you or repossess any of your property.

Where Do I Go to File Bankruptcy in Hawaii?

Hawaii only has one bankruptcy court location, which is in Honolulu: 
United States Bankruptcy Court 
District of Hawaii 
1132 Bishop St., Suite 250 
Honolulu, HI 96813 
(808) 522-8100

Ironically, filing for bankruptcy is going to cost you. The filing fee alone is going to cost you several hundred dollars, depending on which route you choose. This fee may be set up on installments, but it cannot be waived. If you are filing on your own in Hawaii there won’t be attorney fees, but be prepared for a tough road ahead. Bankruptcy laws are difficult to navigate. 

If you are filing without the aid of an attorney, you will need a two-page petition, along with several other forms, from your Hawaii district bankruptcy court. These forms are referred to as the schedules.

On these schedules you will be required to describe in detail your present financial status and expenditures from the previous two years. If the judge or your creditors discover you have been deceptive in any way, it could jeopardize the entire process.

What happens next?

Upon filing, the court assumes control of your debts and all property not covered by your Hawaii exemptions. The court will appoint a trustee to your case, whose job is to see that your creditors get as much as possible. 

Within the first month post-filing, you will be required to attend a short creditors meeting or hearing that will include your bankruptcy trustee, the court, and any of your creditors who want to attend. You will be asked questions about your financial situation and decisions. 

Filing for bankruptcy in Hawaii usually wraps up in a couple of months, thought it can take much longer for the actual bankruptcy to come to a close. Chapter 7 can usually close within four to six months, while Chapter 13 can last up to five years.