When you can’t pay your debts: Bankruptcy and other options
Debt repayment orders
What is a debt repayment order?
A debt repayment order (formerly known as a “summary instalment order”) is an order made by the Official Assignee (see above, “Who is the Official Assignee?”). This order allows you to pay back the money you owe (in full, or to the extent that the court considers practicable) in regular instalments over a period of up to three years (or five years in special circumstances) without the threat of further legal action. If you have income or assets, a debt repayment order may be an alternative to bankruptcy.
When a summary instalment order is made, a supervisor is appointed to help you manage the payments due under the order.
When a debt repayment order is made, a supervisor is appointed to help you manage the payments due under the order. The supervisor must be a suitable person to supervise your compliance with the terms of the debt repayment order. The supervisor notifies all your known creditors about the debt repayment order.
The Official Assignee can also make orders:
- about your future earnings or income
- about the disposal of goods that you own
- giving the supervisor the power to
- direct your employer to pay part or all of your earnings to them
- supervise the payment of your reasonable living expenses of you and your household.
Who can apply for a debt repayment order?
You as a debtor, or a creditor with your agreement, can apply to the Official Assignee for a debt repayment order, setting out the details of the proposed payment plan.
When can a debt repayment order be made?
The Official Assignee can make a debt repayment order if satisfied that:
- your total unsecured debts are not more than $50,000 (not counting your student loan), and
- you are unable to repay those debts immediately
- the order relates only to those debts.
What happens if you fail to make the agreed payments?
The supervisor must notify the Official Assignee. The debt repayment order can be ended and creditors can start, or restart, legal action to recover any outstanding debts. This may lead to your bankruptcy.
What are the advantages of a debt repayment order?
There is no minimum debt requirement for a debt repayment order.
A debt repayment order helps you to manage the payment of your debts.
A debt repayment order is not advertised in newspapers or the New Zealand Gazette (although it is recorded on a public register on the Insolvency and Trustee Service website for the duration of the order, and the supervisor must send notice to known creditors).
What are the disadvantages of a debt repayment order?
While the debt repayment order is in force and before all your creditors have been paid it is an offence to get credit, borrow or enter into a hire purchaser agreement for more than $1,000 without first informing the credit provider that you are subject to a debt repayment order.
A creditor’s proposal
What is a “creditor’s proposal”?
Insolvency Act 2006 ss 325-339
A creditor’s proposal is an alternative to bankruptcy and is a private but formal arrangement between you and your creditors. It has the advantage that you can still carry on in business and it doesn’t have to be advertised like bankruptcy.
How do I arrange a creditors proposal?
You’ll need a majority of your creditors (that also includes 75% of the value of your debt) to agree to a plan about how and when they will be paid. At the end of this period (usually between 3-5 years) your remaining debt is written off. You will need to get help from a lawyer or accountant to draft the agreement.
This must be approved by a court but doesn’t have to involve the Official Assignee. A trustee is appointed to oversee the proposal. The trustee has to file a summary of receipts and payments with the court every six months. Once the proposal is approved your creditors can’t take action against you for those debts without the court’s permission.