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, but not identical, to the protection given to you by bankruptcy. It is a one-off opportunity for you to sort out your financial affairs and get back on your feet without entering formal bankruptcy. It usually lasts 12 months instead of the normal three year period for bankruptcy.
Who can apply for the no-asset procedure?
You will be eligible to enter into the no-asset procedure if you:
- have no property you can sell to make money (“no realisable assets”) –this excludes 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 may not be eligible if:
- you have concealed assets with the intention of defrauding creditors
- you incurred a debt knowing you did not have the means to repay it
- a creditor objects
- a creditor has begun the process to put you into bankruptcy, and it is likely that the outcome for the creditor will be much better if you are made bankrupt.
How do I apply for the no-asset procedure?
A debtor can apply for the no-asset procedure by filing an application and a statement of affairs with the Official Assignee. This can be done online.
What are the advantages of the no-asset procedure?
Most of the unsecured debts of the person 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?
The debtor still has to pay certain debts – court fines, child support, maintenance orders, student loans and debts with secured creditors.
The debtor cannot get credit for 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.)
The names of people subject to a no-asset procedure are published in their local newspaper and the New Zealand Gazette and are also recorded on a public register on the Insolvency and Trustee Service website.