When you can’t pay your debts: Bankruptcy and other options
The no-asset procedure
What is the no-asset procedure?
The no-asset procedure is an alternative to bankruptcy. The procedure gives you protection from creditors that is similar to bankruptcy. When you enter a no-asset procedure, most of your debts are cleared. The people or organisations you owe money to (“creditors”) don’t get paid anything.
However, a no-asset procedure is a one-off opportunity. You cannot use it more than once and your debts must be less than $50,000. It usually lasts 12 months instead of the normal three year period for bankruptcy.
Who can apply for the no-asset procedure?
You can apply to enter a no-asset procedure if you:
- have no property you can sell to make money (“no realisable assets”) – this is everything you own except a motor vehicle up to a value of $6,500, tools for work, and essential personal and household effects
- have never been through the no-asset procedure
- have never been bankrupt
- have debts of between $1,000 and $50,000 (not counting your student loan, maintenance owing under the Family Proceedings Act and child support owing under the Child Support Act)
- cannot repay any of your debts
- any of your creditors would not receive much more if you were made bankrupt instead.
You cannot apply if:
- you have hidden assets with the intention of defrauding creditors (it is important you are honest about everything you own)
- you incurred a debt (i.e., owed people money) knowing that you won’t be able to pay
- a person or organisation you own money to (a creditor) objects
- a creditor has begun the process to put you into bankruptcy, and it is likely that it will be better for the creditor that you are made bankrupt instead (see: “How does a person become bankrupt”).
How do I apply for the no-asset procedure?
What are the advantages of the no-asset procedure?
Most of your unsecured debts are wiped. Unlike bankruptcy, this does not include a student loan.
The procedure usually lasts for a period of 12 months. By comparison, bankruptcy usually lasts for three years.
What are the disadvantages of the no-asset procedure?
You still have to pay certain debts – court fines, child support, maintenance orders, student loans and debts with secured creditors.
You cannot get credit, borrow money or enter into a hire purchase agreement more than $1,000 without first informing the credit provider that the debtor is subject to the no-asset procedure. Between applying and becoming subject to the no-asset procedure, the limit is $100.
Your name will be published in their local newspaper and the New Zealand Gazette and is also recorded on a public register on the Insolvency and Trustee Service website.