Hawaii Debt Relief: Your Guide to State Laws and Managing Debt

Hawaii may be blessed with beautiful beaches and unbeatable ocean views, but even paradise comes with some everyday problems — like debt. If you’re being crushed by a mountain of monthly payments, you’re not alone. Hawaiians carry some of the highest mortgage and credit card debt in America, although they also have some of the lowest student and auto loan balances.

By understanding Hawaii’s debt laws and learning your relief options, you can find a way out of debt. Here’s what you need to know about debt relief and management in Hawaii.

• Debt in Hawaii: At a glance
• Debt collection in Hawaii
• Hawaii debt-relief programs
• Payday lending laws in Hawaii
• Tips to tackle debt in Hawaii
• Filing for bankruptcy in Hawaii
• The bottom line

Hawaii debt: At a glance

Debt collection in Hawaii

If you have unpaid debt in Hawaii, creditors may turn your account over to a debt collection agency. Hawaii’s Collection Agencies Act requires agencies collecting debt from anybody in Hawaii to register with the state Department of Commerce and Consumer Affairs.

Once your debt has been sold to a registered debt collection agency, there are a number of restrictions laid out by the federal Fair Debt Collection Practices Act (FDCPA) about how a collector can contact you and what they can discuss when they do. They may call you or send you letters, emails or texts — but they can’t do so at an “inconvenient time or place.” If you’re getting messages early in the morning or late at night, that’s illegal — debt collection agencies must contact you between 8 a.m. and 9 p.m. They also must stop contacting you at your workplace if you ask them not to do so.

The FDCPA also details what a collection agency must tell you about your debt. Within five days of first contact, you must receive a written validation notice that explains how much you owe and the name of the creditor. This notice will also outline how to move forward, if you don’t believe the debt is yours.

Debt collectors cannot harass you, misrepresent how much you owe, threaten you, curse at you or make false claims. Basically, if you think a debt collector is bothersome, their practices might be illegal under the FDCPA.

The debt collector also can’t discuss your debt with just anyone — that means they can’t call friends or relatives except to find your address, home number and work contact information. Even then, they are usually only allowed to contact your family members once. Besides that, collectors can only discuss your debt with you, your spouse or your attorney.

Responding to collection letters

If you don’t believe a debt is rightfully yours, you can ask the debt collector to verify the debt. In response, they must send you written verification, such as a bill statement, that indicates the debt is yours. However, you must send this letter within 30 days.

At any time, you can request that the debt collector stop contacting you. While this might seem like a magic bullet, keep in mind that ceasing contact does not make the debt go away. If the debt is yours, the collection agency can sue you for the amount, which may lead to their taking your property in lieu of payment or garnishing your wages or bank accounts — including joint bank accounts.

If you have a complaint about an agency’s collections practices, you can contact Hawaii’s Regulated Industries Complaints Office (RICO).

Understanding Hawaii’s statute of limitations

If you have debt in Hawaii, it’s extremely important to understand the statute of limitations — or, in this case, how long a creditor has to sue you for unpaid debts. It does not limit how long debt collectors can attempt to collect the debt, however. So even if a debt has passed its statute of limitations — rendering it “time-barred” — the collectors can still contact you to try to recoup it.

It’s important not to make any payments on debts that are time-barred. If you even make a $1 payment, you’ll restart the clock on the statute of limitations, meaning the collector can pursue the debt in court.

For the most part, Hawaii allows creditors six years to collect what you owe after missing a payment. But if a court has determined you owe money — such as in a lawsuit ruling — that time extends to 10 years, and creditors can seek additional extensions.

Hawaii debt-relief programs

If you’re struggling with insurmountable debt, your debt has gone into collections, or if you’re worried a large debt may soon be handed off to a collections agency, all hope is not lost. A number of programs exist to help you get out of debt.

Debt-relief programs offer an alternative to bankruptcy. These programs may be able to settle your debt for less than you owe — but keep in mind your credit score will still take a hit. When you sign up with a debt relief program, it manages your relationships with your creditors. Often, these programs require you to stop making payments on past-due accounts in an effort to convince the lender to negotiate before selling your debt to a collection agency. No matter what some firms may promise, however, it won’t be a quick fix. Expect to wait up to four years before your debt is fully relieved, according to this chart.

A few options are:

• National Debt Relief, which requires you to have at least $7,500 in debt and typically takes 24 to 48 months to eliminate debt. Expect to pay 18 to 25% of your monthly payment in fees.
• Accredited Debt Relief, which connects you with debt relief companies in its network. Fees vary, but expect to pay at least 5 to 7% of your amount of debt per year.
• CuraDebt, which provides an initial free counseling session and charges about 20% of your total debt. It only requires a minimum of $5,000 in debt to qualify.

Payday lending laws in Hawaii

A payday loan is a loan that can help you get by and cover expenses until your next payday, often with a very high annual percentage rate (APR). As such, these loans are risky and can push you into even deeper debt if you’re not able to pay them off by the term deadline. The following are Hawaii’s limits on these loans:

• Maximum loan amount: $600
• Maximum loan term: 32 days
• Finance charges: Maximum 15% of the check amount

Hawaii allows payday lenders to charge up to 459% annual percentage rate (APR) interest — so borrowing $300 for five months could cost you $529 in interest. Legally, Hawaii puts few restrictions on payday lenders: They must post their fees, register with the state, verify that no customer has more than one outstanding loan and allow extended payment plans.

Because payday lenders don’t operate under the restrictions of traditional lenders and charge exorbitant interest rates, we don’t recommend turning to these creditors for debt relief.

Tips to tackle debt in Hawaii

You don’t need to take out a payday loan or use a debt-relief program in order to tackle debt. Nothing is insurmountable: There are a number of consumer strategies that can reduce your monthly payments and debt load — before your loans are turned over to collection agencies.

Consolidate your debt

If you have a number of loans weighing down your monthly budget, debt consolidation may be a good option.

Debt consolidation loan. The most popular method for debt consolidation is a personal loan. With a debt consolidation loan, you take out one loan at a fixed rate and use it to pay off your other debts. Now, instead of many balances, you’ll have only one monthly payment. If you have a strong credit profile, you may be able to secure financing at a lower interest rate than your existing debt and lower your ongoing interest charges.

That’s the ideal situation, however. Some people may choose to consolidate with a personal loan in order to extend the amount of time they have to repay the debt and lower their monthly payment, even if the interest rate isn’t much better. You may not save on interest in that case, but you give yourself breathing room and can at least move forward knowing you have a fixed loan with a rate that won’t fluctuate over time.

Debt consolidation isn’t a miracle cure — especially if you can’t keep from reaching for the credit card. This strategy requires a commitment to a debt-free lifestyle.

Cash-out refinance. There are other ways to consolidate debt than a personal loan alone. If you are a homeowner, you could consider a cash-out refinance, which allows you to take out a larger mortgage loan and use the difference to pay off debts. Just beware of closing costs, which can eat into your potential savings.

Home equity loan. Another option is a home equity loan for debt consolidation. Because the debt is secured by your home, it may come at a lower interest rate than your current debt. However, the risk is that your home would be up for grabs if you were to default, so proceed with caution.

Refinance

Mortgage refinance. If you’re feeling burdened by your mortgage, you might consider refinancing at a lower rate — assuming today’s rates are lower than the rate you secured on your mortgage originally. If you’re refinancing a home, expect to pay the same closing costs and fees as a traditional mortgage, which can be prohibitive if you’re tight on cash.

Auto loan refinance. The same approach can be taken with an auto loan refinance, especially if your credit profile has improved since you originally financed the purchase. You may qualify for an auto loan at a lower rate. Again, some folks may decide to refinance into a new mortgage or auto loan that has a longer repayment term to reduce their monthly payment — even if it means paying more in interest over the long term. This can make sense if you’re truly strapped for cash and need to reduce your monthly payments, but choose this route carefully.

Student loan refinance. If you don’t mind giving up the flexible repayment benefits that come with federal student loans, consider refinancing with a private lender.

Use a balance transfer card

A balance transfer card offers a low or 0% introductory APR for a limited period of time and lets you transfer balances from other cards onto the new card.

Balance transfers aren’t for everyone. While the low- or no-interest period offered by these cards lets you pay your debt down fast, there are a number of potential pitfalls. Before jumping aboard the balance transfer boat, there are a few things you need to pay attention to:

• The length of the introductory offer: Many balance transfer cards offer 0% APR introductory terms for a set amount of time — typically 12 to 21 months. Make sure you can pay off the balance you’re transferring in that amount of time; otherwise you may get hit with large interest fees.
• Minimum credit requirements: Many balance transfer cards require an excellent credit score of 700 or above. If you’re saddled with only a few pesky debts, this can be a good option, but if your credit is poor, you may not be able to open one of these cards.
• Balance transfer fees: The fees charged to open a new card can be prohibitive. Expect to pay 3% of the total debt you’re transferring. If cash is tight, this may make balance transfer cards an unaffordable option.

Filing for bankruptcy in Hawaii

No one wants to file for bankruptcy, but sometimes, it’s the best option. If you’re buried under debt, it can be the simplest way to emerge from it. Bankruptcy can also provide aid after a serious financial catastrophe. Yes, declaring bankruptcy will temporarily hit your credit score, but our research shows it’s possible to bounce back quickly, and, within a year or two, you may be able to borrow with next-to-normal rates.

If you’ve looked into other debt-relief options and don’t think you can afford the monthly payments — or if you’re being hounded by creditors — bankruptcy might be a suitable option for you. There are two types for individuals:

• Chapter 7 bankruptcy will liquidate all your assets to pay off your creditors. You may be able to keep your car and your home, and you might even be allowed to keep a little equity in your home, as Hawaii has a homestead exemption. Chapter 7 may be a good option if you make below 50% of the median income level, are up-to-date on your mortgage or rent and car payments, have no disposable income and haven’t filed Chapter 7 bankruptcy in the previous eight years.
• Chapter 13 bankruptcy is also called a “wage earner’s plan,” because you must have a regular monthly income to file for bankruptcy. This will help you set up a three- to five-year repayment plan, and you can keep your house and car while doing so. After the plan is finished, all of your remaining debt will be discharged.

For more information about filing bankruptcy in Hawaii, check out the U.S. Bankruptcy Court webpage for the District of Hawaii.

The bottom line

Managing debt in Hawaii is possible, as long as you’re willing to be proactive. Now that you understand the laws governing debt collectors and your debt-relief options, you’re able to make the next steps toward financial freedom — whatever that looks like for you.

The information in this article is accurate as of the date of publishing.