Know your rights
If you can’t pay your debts, you may still be able to avoid entering a formal insolvency procedure by making an agreement with all of your creditors to repay some or all of your debts over time or as a one-off payment. A budget advisor, lawyer or accountant would be able to help you with this process.
Bankruptcy is the last resort. Investigate all other options first.
All personal insolvencies in New Zealand are administered by the Official Assignee. They provide debtors with information about these different insolvency options.
If you are thinking about entering into one of these procedures, you will need to complete a Statement of Affairs (detailed financial statement) and an application form. These documents can be completed and submitted online, or you can post them to the Official Assignee. They will assess your situation and advise you whether or not you are eligible to enter into the procedure of your choice. Factors to take into account include:
- your level of debt
- what your debts are for
- the value of any assets you have
- your ability to make repayments towards your debts
- whether you have used any personal insolvency options before.
No Asset Procedure (NAP)
The NAP is a 12 month insolvency procedure that you may enter if you have no assets, and no available income with which to make repayments to your creditors. Before applying for the NAP you should get help from a budget advisor as entering this procedure may have a significant impact on your future.
To qualify you must have:
- no assets of any realisable value and not be in a position to be able to make repayments to your creditors
- not previously been admitted to a NAP or have been bankrupt
- total debts of more than $1,000 and less than $47,000 (excluding student loans, fines and criminal reparations, but including guarantees and debts owed as a Trustee)
- not disposed of or concealed assets prior to making the application.
While you are in a NAP, it is an offence to raise credit or take out a hire purchase over $1,000 without first advising the creditor that you are currently in a NAP. Your credit history is likely to be affected for up to 5 years (this is the length of time that your name will appear on the public insolvency register). The Official Assignee does not prevent you from having a bank account during your NAP. However, your bank may not allow you to retain an account or may restrict the banking facilities that they make available to you.
Summary Instalment Order (SIO)
A SIO is a supervised repayment plan which allows you to repay all or some of your debts in instalments over a period of three to five years. A SIO could protect your items from repossession and save you from bankruptcy or a NAP. During the SIO period, creditors will be unable to add any further interest or charges to your debt and will not be able to take any further action against you a long as you make your payments. When you have made all the required payments any remaining debts included in the Order will be written off.
To qualify for a SIO:
- your total unsecured debts (excluding student loans, fines, penalties and reparation orders) must be less than NZ$47,000
- you must be unable to pay your debts immediately but able to pay some or all of them over time.
To enter into a SIO you need to apply to the Official Assignee. A Supervisor is appointed to monitor your payments and communicate with your creditors. You will need to select a supervisor when you apply. While you are subject to a SIO, it is an offence to raise credit or take out a hire purchase (HP) over $1,000 without first advising the creditor that you are currently in a SIO. If you don’t make regular repayments, the order can be terminated and creditors can restart legal action to recover their debtsSuch proceedings may include making you bankrupt.
Bankruptcy should be thought of as the last resort if you can’t repay your debts when they are due. You can voluntarily apply for bankruptcy or you can be made bankrupt by a creditor.
Once you become bankrupt your assets become the property of the Official Assignee who may sell your assets and/or require you to make payments if it is likely to be of benefit to your creditors. You will be allowed to keep cash up to $1,200, the necessary tools of trade and household furniture and effects. You are also entitled to retain a motor vehicle up to the value of $6,000.
Bankruptcy usually lasts for three years after you submit a completed Statement of Affairs form. During bankruptcy creditors are unable to pursue you for the debt. Discharge from bankruptcy releases you from all debts included in your bankruptcy. This means that you are no longer liable for the debt, nor do you have to repay them.
Bankruptcy means that:
- your name, and the fact that you are bankrupt, will appear on the public insolvency register for up to 7 years.
- you can’t run or own a business or work for a relative whilst bankrupt unless you have the consent of the Official Assignee
- you can’t take out a loan of more than $1,000 without telling the lender that you are an ‘undischarged bankrupt’
- you will remain bankrupt for at least three years
- you will need the consent of the Official Assignee in order to leave the country while you are bankrupt
- your credit rating will be affected for up to seven years and it may be hard to borrow money even after you are discharged from bankruptcy.
Find out more information about personal insolvency on the Insolvency and Trustee website(external link).