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When you can’t pay your debts: Bankruptcy and other options

Bankruptcy

What is bankruptcy?

Insolvency Act 2006, s 7; Insolvency Act 2006, Parts 2–4

Bankruptcy is a way of dealing with debts that you cannot pay. It relieves you of most of your debts, but ownership of your property transfers to the Official Assignee (see “Who is the Official Assignee?” above), and you will be subject to a number of restrictions (see “What are the disadvantages of bankruptcy?” below). The Official Assignee will sell any property you have (subject to some limitations: see “What are the disadvantages of bankruptcy?” below) and distribute any proceeds among your creditors.

How does a person become bankrupt?

Insolvency Act 2006, ss 10–13, 45, 46

If you have debts of $1,000 or more, you can apply for bankruptcy. Someone you owe more than $1,000 to can also ask the High Court to make you bankrupt.

You can apply by completing an application for adjudication and a statement of affairs and filing these with the Official Assignee.

A lender who you owe at least $1,000 to can apply to the High Court for you to be made bankrupt. The lender first must prove the debt – for example, by getting a court judgment (see “How are debts recovered through the courts?” in this chapter). The lender would then serve a bankruptcy notice on you, giving you 10 working days to pay the debt or to apply to the High Court to set aside the bankruptcy notice. If you don’t pay within the 10 working days, you have committed “an act of bankruptcy”. The lender will then apply to have you declared bankrupt.

What are the advantages of bankruptcy?

Insolvency Act 2006, s 76

Most of your unsecured debts, including any student loan balance, are wiped, and proceedings against you to recover those debts are halted.

What are the disadvantages of bankruptcy?

Insolvency Act 2006, ss 62, 101, 138, 147, 149, 158, 164, 194, 204, 211–212, 419–439, 433(1)(f)

As a bankrupt person, you can only keep limited assets, that is:

  • essential personal and household items (including furniture, personal effects and clothing)
  • tools for work
  • a motor vehicle up to the value of $6,500
  • money up to $1,300.

As a bankrupt person, you still have to pay certain debts – court fines, child support and debts with secured creditors. You can also be required to make periodic payments to the Official Assignee (for example, out of your wages) as a contribution towards payment of your debts.

If you have transferred assets to someone else in the two years before you become bankrupt, the Official Assignee might be able to take those assets back:

  • if the transfer occurred when you were unable to pay your debts, and the recipient received more in the transfer than they would have received in the bankruptcy
  • if the transfer was a gift
  • if the transfer was “at an undervalue” (for example, you sold a car to someone and charged less than the car was worth).

As a bankrupt person, you cannot get credit for more than $1,000 without first informing the credit provider that you are bankrupt.

Without first getting the permission of the Official Assignee, you cannot:

  • run a business
  • be employed by a relative or an entity controlled by a relative
  • leave New Zealand.

If you break any of the rules of bankruptcy or make false statements to the Official Assignee, then you commit a criminal offence.

The names of bankrupt people are published in their local newspaper and the New Zealand Gazette, and they are also recorded on a public register on the Insolvency and Trustee Service website.

How long does bankruptcy last?

Insolvency Act 2006, s 290

You are usually discharged from bankruptcy automatically after three years.

Next Section | The no-asset procedure

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Credit and debt

Where to go for more support

Community Law

www.communitylaw.org.nz

Your local Community Law Centre can provide free initial legal advice and information.

Consumer Protection

www.consumerprotection.govt.nz

Consumer Protection helpline: 0508 426 678 (0508 4 CONSUMER)

Email: cpinfo@mbie.govt.nz

The Consumer Protection website has useful information on a range of consumer topics. Consumer Protection is part of the Ministry of Business, Innovation and Employment (MBIE).

MoneyTalks

www.moneytalks.co.nz

Phone: 0800 345 123

Email: help@moneytalks.co.nz

MoneyTalks provides free, confidential budgeting support. They can pair you with a financial mentor to help you if you are struggling with debt or need advice on budgeting.

FinCap

www.fincap.org.nz

Phone: 0800 345 123

Email: kiaora@fincap.org.nz

FinCap can help you with budgeting information online or on the phone. They may also suggest a local budgeting service to help you with debt and other budgeting issues.

Consumer NZ

www.consumer.org.nz

Phone: 0800 266 786

Email: info@consumer.org.nz

The Consumer NZ website provides a wide range of information on consumer credit and debt issues, including debt collectors, repossession and bankruptcy

Commerce Commission

www.comcom.govt.nz

Phone: 0800 943 600
Email: contact@comcom.govt.nz
The Commerce Commission enforces the consumer credit legislation (the Credit Contracts and Consumer Finance Act) and the laws against misleading and deceptive conduct by traders (the Fair Trading Act). The Commission provides information on these areas on its website.

It’s All Good

www.comcom.govt.nz/business/resources-for-consumer-organisations/its-all-good

It’s All Good is an animated series produced by The Commerce Commission about consumer rights.

Citizens Advice

www.cab.org.nz

Phone: 0800 FOR CAB (0800 367 222)
Citizens Advice Bureaux have volunteers trained in consumer law who can provide information and advice if you have a problem with credit and debt issues.

Dispute resolution schemes

There are four dispute resolution schemes for consumers dealing with lenders and other credit providers.

  • Financial Services Complaints Limited – www.fscl.org.nz
    Phone:
    0800 347 257
  • Email: info@fscl.org.nz
  • Insurance & Financial Services Ombudsman –
    Phone: 0800 888 202
  • Email: info@ifso.nz
  • Banking Ombudsman – www.bankomb.org.nz
    Phone:
    0800 805 950
  • Email: help@bankomb.org.nz
  • Financial Dispute Resolution – www.fdrs.org.nz Phone: 0508 337 337
  • Email: enquiries@fdrs.org.nz

Cases in the District Courts

The Ministry of Justice

The Ministry of Justice website has information about civil claims in the District Courts: see www.justice.govt.nz and search “Claims you can take to civil court”.

Credit reporting

Privacy Commission

www.privacy.org.nz
Phone:
0800 803 909

The Privacy Commission has information on your rights in relation to credit reporting and how to complain if you feel your rights have been breached.

Your credit record

Three credit reporting companies operate nationally in New Zealand. To check your record or correct any information, you’ll need to contact them all.

You’re entitled to a free copy of your credit record. You should make sure you choose the free option when you contact each company.

Centrix – www.centrix.co.nz 0800 236 874

Illion – www.illion.co.nz 0800 733 707

Equifax – www.equifax.co.nz 0800 698 332

Personal Properties Securities Register (PPSR)

www.ppsr.companiesoffice.govt.nz

Search the PPSR register to see if there is any security interest registered against a vehicle. This can be done for a small fee by registering to check online.

Bankruptcy and other options

Insolvency and Trustee Service

www.insolvency.govt.nz

Phone: 0508 INSOLVENCY (0508 467 658)

The Insolvency and Trustee Service (ITS) deals with bankruptcies, no-asset procedures, summary instalment orders and some company liquidations. Information about those processes is available on its website. The ITS is part of the Ministry of Business, Innovation and Employment (MBIE).

Also available as a book

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