Chapter 7 Bankruptcy in Hawaiʻi: What You Keep, What Is Erased, and How It Works

By Martin Berger, Hawaiʻi Consumer Bankruptcy Attorney

Past President, Hawaiʻi Bankruptcy Bar Association | Former Adjunct Professor of Business Law, University of Hawaiʻi at Hilo | Over 20 Years Practicing in the U.S. Bankruptcy Court, District of Hawaiʻi

Last updated September 6, 2026 · Reviewed for legal accuracy by Martin Berger

Exemption and median-income figures verified current as of August 15, 2026.

Memberships & Recognition

I have helped more than a thousand people through this process, and one pattern has been clear: the clients who come to me are not reckless. They are working people, families, and small business owners from every island. Many have been hit by a medical crisis, a layoff, a divorce, or a business failure. What they share is debt that has outgrown any realistic way to repay it. Chapter 7 bankruptcy is a legal tool that permanently erases most unsecured debt. For most people, it is the fastest, cleanest path to a genuine clean slate.

I wrote this guide to answer the questions I hear most often, so you can make an informed decision based on facts, not fear.

Disclaimer: This guide is provided for informational and educational purposes only. It does not constitute legal advice and does not establish an attorney-client relationship. Bankruptcy law is highly fact-specific. For guidance on your specific situation, please contact my office. You can start with my free questionnaire or call (808) 468-7000.

Every effort has been made to ensure accuracy, but this guide may contain errors or omissions and is current only as of the date last updated above. The law changes frequently, so confirm any point with my office before relying on it.

Key Takeaways

• Most unsecured debt is erased. Credit cards, medical bills, personal loans, and utility balances are wiped out permanently.
• Income rules apply, but there are exceptions. Many individuals with consumer debt must pass a means test. However, if your debts are primarily business debts, the means test does not apply to you at all.
• You keep most of what you own. Exemption laws protect your home equity, your car, your retirement accounts, and your household goods, each up to limits set by law.
• Collection stops immediately. The automatic stay takes effect the instant your case is filed, halting most lawsuits, foreclosures, and wage garnishments.
• The process is fast. Most cases take four to six months. You attend one short meeting and most likely will not appear before a judge.
• Credit recovery happens quickly. Many clients see meaningful credit score improvement within twelve to twenty-four months, and every client gets the 720 CreditScore program as part of my representation.

What Is Chapter 7 Bankruptcy in Hawaiʻi?

Chapter 7 bankruptcy in Hawaiʻi is a federal court process that erases most unsecured debts, such as credit cards, medical bills, and personal loans, while letting you keep property protected by Hawaiʻi or federal exemptions. Individuals and married couples filing together use it to discharge debts in exchange for surrendering any non-exempt assets.

The No-Asset Reality. The vast majority of consumer cases are “no-asset” cases. This means you own nothing beyond what the law protects. The trustee takes nothing, the court enters a discharge, and you walk away free of the listed dischargeable debts.

The Court Process. Your case is filed in the U.S. Bankruptcy Court for the District of Hawaiʻi in Honolulu, which serves every island. You will most likely not see a judge. Instead, the U.S. Trustee’s office assigns an independent trustee (not a judge) who oversees your case, reviews your paperwork, and looks for any non-exempt property that could repay creditors. The trustee runs one short hearing, the 341 meeting of creditors, where you answer a few questions under oath. In a typical no-asset case, there is nothing to distribute, and the court moves you toward discharge.

The Filing Fee. The current court filing fee for an individual Chapter 7 case is $338. The court can allow you to pay this in installments, and may waive it entirely if your income is below 150% of the federal poverty line and you cannot pay in installments.

Chapter 7 vs. Chapter 13. Chapter 7 is a clean slate. Chapter 13 is a three to five year managed repayment plan used to catch up on mortgage arrears or to address debts you cannot discharge. My side-by-side guide to the two chapters compares them in detail.

The Automatic Stay

The automatic stay is a federal injunction (a binding legal order) that takes effect the instant your case is filed. For most people, this is the most immediate relief in all of bankruptcy. As soon as I file, the calls, lawsuits, and garnishments stop. It immediately halts:

• Wage garnishments (other than for child support and alimony)
• Bank account levies
• Foreclosure proceedings
• Vehicle repossessions
• Harassing collection calls
• Most pending lawsuits over money

The stay does not halt everything. It will not stop most criminal proceedings, and it will not stop the establishment or collection of domestic support obligations such as child support from your non-bankruptcy income. If you have had a bankruptcy case dismissed within the past year, the protection can be much shorter or may not arrive at all, so tell me at the start if you have filed before.

Before you file, you still have some protection. The federal Fair Debt Collection Practices Act limits how third-party debt collectors can treat you. It bars harassment, calls at unreasonable hours, and false threats, and it lets you demand in writing that a collector stop contacting you. But the FDCPA only governs how collectors behave. It does not stop a lawsuit or lift a garnishment. The automatic stay stops both as soon as I file, and later the discharge erases the qualifying debt for good. My guide to stopping creditor calls in Hawaiʻi explains those protections in more detail.

Do You Qualify? The Means Test and Its Exceptions

The means test evaluates your income to determine whether you have the ability to repay your creditors. It applies only if your debts are primarily consumer debts. My Hawaiʻi means test guide works through the calculation step by step.

The Practical Test

The means test is the legal question. The practical question is simpler: whether your income can realistically pay off your debt. Signs that it cannot:

• Your expenses are more than your income, month after month.
• You can only make minimum payments, and the balances are not going down.
• You are using credit cards or new loans to cover essentials like food, rent, or utilities.
• You are thinking about using retirement money to pay unsecured debt.

And if your household income is below the Hawaiʻi median for your household size, the law’s income requirement is already satisfied: the means test presumption cannot be raised against you.

How the Means Test Works (For Consumer Debtors)

If your debts are primarily personal, the test involves two stages.

Stage One: The Median Income Comparison. Your household’s average monthly income over the last six months is multiplied by twelve to get your annual income, then compared to the Hawaiʻi median income for your household size. The median is simply the midpoint: half of comparable Hawaiʻi households earn more, and half earn less. If your income is below the median, you pass automatically. If it is above, the test moves to stage two.

Stage Two: The Disposable Income Calculation. If you are over the median, the test subtracts IRS-allowed living expenses and secured debt payments from your income. If little or no disposable income is left, you pass. Too much disposable income triggers a presumption of abuse. In that case, I can try to reverse the presumption by documenting “special circumstances,” or your case may need to convert to a Chapter 13 repayment plan or be dismissed.

Hawaiʻi Advantage. Hawaiʻi’s counties carry some of the highest IRS-allowed housing and utility figures in the country, well above mainland averages. Because the means test subtracts those local allowances from your income, a household here can pass the second stage on an income that would fail the test on the mainland.

Current Hawaiʻi Median Income Figures (Effective April 1, 2026)

Household size includes everyone who lives with you and shares income and expenses.

Source: U.S. Trustee Program / U.S. Census Bureau median family income figures for cases filed on or after April 1, 2026. These figures are updated twice a year, so confirm the current figure before relying on it.

The Business Debt Exception

If more than 50% of your total debt was incurred to run a business or for a profit-seeking motive, your debts are not “primarily consumer debts,” so the means test does not apply. You can file Chapter 7 regardless of how high your household income is. There are also specific means-test exemptions for certain disabled veterans and for reservists and National Guard members called to active duty. If an SBA loan is part of your business debt, my SBA loans and bankruptcy guide covers how these cases work.

What Property Can You Keep?

The trustee can only take property that is not protected by an “exemption” (something you get to keep). Hawaiʻi allows you to choose between the state exemption schedules and the federal exemption schedules. You cannot mix and match; you must elect one set. My Hawaiʻi bankruptcy exemptions guide compares the two systems in more detail.

The Federal vs. State Choice

Federal Exemptions. These are often better for renters and for homeowners with limited home equity, because they include a “wildcard” exemption that can protect cash and tax refunds. They protect up to $31,575 in home equity per person ($63,150 for a married couple filing jointly who own the home together).

State Exemptions. These protect up to $30,000 in home equity for a head of household or a person 65 or older, and $20,000 for everyone else. The homestead covers the dwelling and up to one acre of the land it sits on.

The Cash Problem. Hawaiʻi state law does not have a wildcard exemption. If you choose the state system, cash in your bank account and pending tax refunds are largely exposed to the trustee.

The 730 Day Domicile Rule. To use the Hawaiʻi state exemptions, you must have been domiciled in Hawaiʻi for the two years (730 days) immediately before filing. If you moved here more recently, you must use the exemptions of your previous home state, or the federal exemptions. If your prior state limits its exemptions to its own residents, federal law lets you fall back on the federal exemptions.

Tenancy by the Entirety (Hawaiʻi Homeowners)

Hawaiʻi recognizes tenancy by the entirety for property owned by a married couple, and it is a powerful shield. It is a special way for spouses to hold title, different from joint tenancy: the law treats the couple as a single owner, so a debt that only one spouse owes generally cannot reach the home. It is not automatic: it must be written in your deed, and it does not cover debts you both owe. The protection is also part of the state exemption path, so electing the federal exemptions gives it up, and in a joint case you and your spouse must elect the same system. This is one of the trade-offs I weigh in every married homeowner’s case.

Partial List of Hawaiʻi State Exemption Limits

Partial List of Federal Exemption Limits

Federal exemption amounts are adjusted for inflation every three years; the next adjustment takes effect April 1, 2028.

What the Exemptions Mean for You

In plain terms, your retirement savings are safe, you can almost always keep your car, and your everyday belongings are protected.

• Retirement. Your 401(k), 403(b), pension, and IRAs are fully protected and are rarely at risk in a Chapter 7 case.
• Your vehicle. Unless you have a large amount of non-exempt equity, you will get to keep your vehicle as long as you keep up your payments (if any).
• Your home. Your house is protected as long as your equity fits within the homestead limit and you stay current on the mortgage. If your equity is well above the limit, the trustee can sell the home, pay you the exemption amount in cash, and use the rest for creditors. That is why I look at equity before anything else, and why Chapter 13, which lets you keep the home by paying your creditors the value of the unprotected equity over time, is often the better tool for a homeowner with real equity.
• Everyday property. Your household goods, furniture, clothing, and the tools you need for your work are protected. Cash and tax refunds are protected too, but only if you use the federal system’s wildcard.

A Timing Problem: Windfalls Within 180 Days

If you become entitled to an inheritance, a life insurance payout, or a divorce settlement within 180 days of filing, that money can be pulled into your bankruptcy estate even though your case is already underway. What matters is when your right to the money arises, not when it reaches your account. (Ordinary wages you earn after filing are safe.) If anything like this might be on the horizon, the timing of your filing matters a great deal, so tell me before we file. My divorce and bankruptcy guide explains how this rule reaches a divorce settlement.

Your Car, Your House, and Credit Unions

The trustee has no interest in your home or car if you owe more than it is worth, or if your equity is below your exemption amount.

To keep a secured asset like a car or a house, you must continue making the monthly payments. Chapter 7 erases your personal liability on the loan, but the lender’s lien against the property survives the bankruptcy.

The Credit Union Cross-Collateralization Problem

Borrowing from a local credit union is fundamentally different from using a traditional bank. Credit union loan agreements often contain a cross-collateralization clause.

How it works:

• Any asset you pledge for a loan (like a car title) automatically secures all other debts you owe that credit union (like a credit card or signature loan).
• If you file bankruptcy, the credit union can treat your otherwise-unsecured credit card balance as a secured debt tied to your vehicle.
• This means they may have a security interest in your car that covers the credit card balance, even if your auto loan itself is current.

Your options in Chapter 7:

• Surrender the vehicle and discharge all the associated debt.
• Keep and continue paying. In my practice this is the usual choice: we list the intention as “keep and continue making payments,” and for most lenders that works, though the law does not require a lender to accept it.
• Reaffirm by signing a reaffirmation agreement covering the secured balance so you can keep the vehicle.
• Redeem the vehicle by paying the credit union its actual fair market value in a single lump sum.

Note on Bank Accounts and Setoff. Credit unions and banks generally have a right of setoff:

• The moment you file, the credit union may freeze the cash in your account.
• The automatic stay bars them from actually applying those funds to your loan without the court’s permission.
• But a valid setoff right is treated like a lien, so it generally survives your discharge. Your discharge erases your personal liability for any remaining balance, but it does not force the credit union to return money it was entitled to keep as of the day you filed.

That is why, before filing, I recommend moving your deposits to an institution you do not owe money to.

Co-Signer Vulnerability

A Chapter 7 discharge protects only you. It does not erase the contract signed by your co-signer.

Chapter 7 Risk. The moment you file, the creditor can immediately demand full payment from your co-signer.

Chapter 13 Solution. If protecting the person who co-signed for you is a priority, Chapter 13 includes a “co-debtor stay.” This blocks creditors from pursuing a co-signer on most consumer debts while you are in the repayment plan.

Debts That Are Erased vs. Debts That Survive

The discharge order permanently eliminates your legal obligation to pay dischargeable debts. This is the discharge injunction under Section 524 of the Bankruptcy Code. Where the automatic stay protected you while your case was open, the discharge injunction takes over when your case closes and is permanent: it bars those creditors from ever again trying to collect a debt that was discharged.

Examples of debts wiped out:

• Credit card balances
• Medical and hospital bills
• Personal and payday loans
• Utility balances (a utility can ask for a fresh deposit soon after you file to keep service going)
• Sole proprietorship business debts
• Deficiency balances from prior repossessions

Examples of debts that survive bankruptcy:

• Child support and alimony (domestic support obligations)
• Non-support divorce debt: money a divorce decree orders you to pay your former spouse for reasons other than support, such as evening out the property split or covering debts you agreed to take over. Unlike support, this kind of debt can be erased in a completed Chapter 13.
• Most student loans, unless you obtain an “undue hardship” determination (see below)
• Recent income taxes, which are generally nondischargeable if the return was due within the last three years or filed within the last two years, or the tax was assessed within the last 240 days. Older income taxes can sometimes be discharged if strict timing rules are met. My tax debt and bankruptcy guide explains those timing rules.
• Taxes for unfiled returns, including unfiled Hawaiʻi state taxes
• Debts obtained by fraud or false financial statements, if the creditor challenges them in court during your case; if no creditor does, they are discharged
• Recent “luxury” purchases and large cash advances. Purchases of luxury goods of more than $900 within 90 days of filing, and cash advances of more than $1,250 within 70 days of filing, are presumed nondischargeable.
• Debts for death or personal injury caused by driving while intoxicated
• Most government fines and criminal restitution
• Condominium and homeowners association fees that come due after your case is filed, for as long as your name is on the unit, even if you have moved out or surrendered it. Fees from before filing are wiped out, and a completed Chapter 13 plan can erase the later ones, which my association fees guide explains.
• Every debt, in the rare case where the court denies the whole discharge because a filer concealed assets or lied under oath in the case

A note on priority debts. Some debts fall into a special category the law calls “priority debts.” If your case has assets to distribute, these get paid first, ahead of ordinary unsecured creditors. Most consumer cases are no-asset cases, so nothing is distributed at all. But the practical point is that the most common priority debts for individuals, recent income taxes and domestic support such as child support and alimony, also survive your discharge. This is also why Chapter 13 can help: a Chapter 13 plan must pay priority debts in full. My guide to the debts bankruptcy does not erase goes through the survivor list one by one.

Student Loans: Federal vs. Private

Historically, discharging student loans was considered nearly impossible because the law requires you to prove “undue hardship” under a strict legal standard called the Brunner test, which the Ninth Circuit (governing Hawaiʻi) still applies. A standard Chapter 7 discharge does not automatically erase student loans. I can file a separate lawsuit inside your bankruptcy case, called an adversary proceeding, to ask the court for a hardship discharge.

The landscape has improved significantly for federal student loans. Since November 2022, the Department of Justice (“DOJ”) and the Department of Education have used a standardized Attestation process. Instead of a costly courtroom fight, it lets me present your full situation on a standardized form that measures your income and expenses against IRS standards. If the numbers show you cannot maintain a minimal standard of living while repaying, the government can recommend a full or partial discharge, and where it agrees, the court usually approves. This guidance remains in effect as of 2026.

Private student loans are different. The DOJ Attestation process does not apply to private loans, so those must be litigated under the Brunner standard. However, some private “student loans” are not “qualified education loans” under the tax code. Examples include loans that exceeded the cost of attendance and loans for non-accredited programs. Those debts may be dischargeable in Chapter 7 without proving undue hardship.

You can learn exactly how the Brunner test and the DOJ Attestation process work in my comprehensive federal student loan guide.

Options Instead of Bankruptcy: Consolidation and Settlement

Consumers often weigh bankruptcy against out-of-court options. It is important to understand the structural differences.

Debt Consolidation Loans

You take out a new, larger loan to pay off smaller credit cards.

• The Mechanism: Consolidates multiple payments into one.
• The Structural Risk: It does not reduce your total debt. If you do not fix the underlying cash-flow problem, you may run the credit cards back up and double your debt load. It offers no legal protection from collection.

Commercial Debt Settlement

You pay a third-party company to negotiate lump-sum payoffs with your creditors. (I negotiate settlements directly for clients who want to avoid filing; this section is about the commercial programs.)

• The Mechanism: You stop paying your creditors and put cash into an escrow account until there is enough to offer a settlement.
• The Structural Risk: Creditors are not legally required to negotiate. While you wait, late fees accumulate and your credit score drops. Creditors frequently sue and garnish wages before a settlement is reached. In addition, forgiven debt is generally treated as taxable income (and a creditor must issue a Form 1099-C for cancellations of $600 or more), unless an exclusion such as insolvency applies.

The Bankruptcy Advantage

Chapter 7 uses federal law rather than voluntary contracts. It provides an immediate, court-ordered injunction against most collection, legally erases the principal balance on dischargeable debts, and generally prevents the IRS from taxing your discharged debt, because debt discharged in bankruptcy is excluded from your taxable income.

The Chapter 7 Process Step-by-Step

1. Intake & Analysis. I do a full legal and financial analysis of your situation, including whether the means test applies to you and how the exemptions protect what you own.
2. Credit Counseling Class. You complete a required credit counseling class (about 90 minutes) within the 180 days before filing.
3. Filing the Petition. I file your paperwork, including a Statement of Intention that tells your secured lenders whether you plan to keep or surrender collateral such as a car. The automatic stay begins.
4. The 341 Meeting. About a month later, I attend a short meeting with you and the trustee.
5. Debtor Education Class. You complete a required financial management class (about 90 minutes) soon after filing, and the certificate is filed with the court before your discharge can be entered.
6. The Discharge. If no successful objection is filed, the court enters your Discharge Order, and your dischargeable debts are officially erased.
7. Case Closed. As long as you have no non-exempt items the trustee wants to take, the court will issue a Final Decree closing your case shortly after the discharge is entered. If you have non-exempt items, your case may take significantly longer to close. I will discuss this with you when we meet.

Credit Recovery After Bankruptcy

A Chapter 7 filing stays on your credit report for up to ten years from the filing date. However, its negative impact fades quickly.

• Immediate relief: Discharged accounts drop to a zero balance, improving your debt-to-income ratio.
• Short-term recovery: Many clients see meaningful credit score improvement within twelve to twenty-four months of discharge.
• Buying a home: You can typically qualify for an FHA or VA mortgage about two years after discharge, and a conventional loan about four years after discharge, provided you maintain steady income and rebuild your credit responsibly.
• A plan to rebuild: After your case is complete, I provide a structured credit-education and rebuilding program to help you raise your score as quickly as possible.

Frequently Asked Questions

About the Author

Martin Berger, Hawaiʻi Consumer Bankruptcy Attorney

For more than twenty years I have represented people across Hawaiʻi in the U.S. Bankruptcy Court for the District of Hawaiʻi. Before moving to Oʻahu, I lived in Hilo for fifteen years, where I taught Business Law at the University of Hawaiʻi at Hilo and ran law offices in Hilo and Kona. I am a past president of the Hawaiʻi Bankruptcy Bar Association, and I concentrate my practice on bankruptcy and federal student loan discharge. I also negotiate debt settlements for people who want to avoid filing. Read more about Martin Berger ›

Reviewed and published by Martin Berger · September 6, 2026

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