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


What is bankruptcy?

Insolvency Act 2006, s 7, Parts 2-4

Bankruptcy is a way of dealing with debts that you cannot pay. It clears most of your debts (meaning you no longer have to pay them).

But, the Official Assignee will take control of everything you own and will sell most of it (subject to some limitations) to pay back the people or organisations you owe money to (your “creditors”). You’ll also be subject to a number of restrictions, some which can last for many years. For more information about these restrictions and limitations, see: “What are the disadvantages of bankruptcy?” below.

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 your own bankruptcy. You can apply for bankruptcy on the New Zealand Insolvency and Trustee Service website.

If you owe someone $1,000 or more and you have failed to pay them, they can apply to the High Court for you to be made bankrupt. For this to happen you must do what is known as an “act of bankruptcy”.

An act of bankruptcy includes, for example, the following situation:

  • where someone gets a court judgment for the debt (see: “How debts are recovered through the courts?”), and
  • after getting to the judgment, the person serves a bankruptcy notice on you. A bankruptcy notice gives you 10 working days to either pay the debt or to apply to the High Court to set aside the bankruptcy notice. If you don’t do either, you’ll have committed an act of bankruptcy and the creditor can apply to have you be made 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 (like your furniture 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, including 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.

In certain situations, if you gifted an asset or sold it for less than what it was worth to someone else in the two years before you become bankrupt, the Official Assignee might be able to take those assets back.

As a bankrupt person, you cannot get credit, borrow money, or enter into a hire purchase agreement 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 also can’t:

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

You also need to inform the Official Assignee about certain things, like if you win a prize or receive an inheritance.

There are also a number of special offences that apply only to bankrupt people. For example, it is a criminal offence for a bankrupt person to:

  • get into debts when they don’t expect they will be able to pay it, or
  • to gamble or live in an extravagant way that increases their bankruptcy, or
  • break any of the rules of bankruptcy or make false statements to the Official Assignee.

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

Legal information and support groups

Community Law

Your local Community Law Centre can provide you with free initial legal advice.

Find your local Community Law Centre online: www.communitylaw.org.nz/our-law-centres

Consumer Protection

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).

Website: www.consumerprotection.govt.nz
Email: cpinfo@mbie.govt.nz
Phone: 0508 426 678 (0508 4 CONSUMER)

Consumer NZ

The Consumer NZ website provides a wide range of information on consumer issues and template letters you can use to write to traders to enforce your rights.

Website: www.consumer.org.nz
Email: info@consumer.org.nz
Phone: 0800 226 786 (0800 CONSUMER)

Commerce Commission

The Commerce Commission enforces the laws against misleading and deceptive conduct by traders (the Fair Trading Act) and the consumer credit legislation (the Credit Contracts and Consumer Finance Act). The Commission provides information on these areas on its website.

Website: www.comcom.govt.nz
Email: contact@comcom.govt.nz
Phone: 0800 943 600

To make a complaint online: comcom.govt.nz/make-a-complaint

To read consumer rights in different languages: comcom.govt.nz/consumers/read-about-your-consumer-rights-and-business-responsibilities-in-another-language

Citizens Advice Bureau (CAB)

CAB provides free, confidential and independent information and advice. See CAB’s website for valuable information on a range of topics.

Website: www.cab.org.nz
Phone: 0800 367 222
Facebook: www.facebook.com/citizensadvicenz

Find your local CAB office: www.cab.org.nz/find-a-cab

FinCap and Money Talks

FinCap is a non-government organisation providing free financial mentoring services.

Website: www.fincap.org.nz
Email: kiaora@fincap.org.nz
Phone: 04 471 1420

MoneyTalks is a financial capability helpline operated by FinCap. The Financial Mentors offer free, confidential advice by phone, text, email and live chat.

Email: help@moneytalks.co.nz
Phone: 0800 345 123
Text: 4029
Live chat: www.moneytalks.co.nz

Insolvency and Trustee Service (ITS)

The 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).

Website: www.insolvency.govt.nz
Phone: 0508 INSOLVENCY (0508 467 658)

Dispute Resolution Schemes

There are four dispute resolution schemes for consumers dealing with lenders and other credit providers. Contact the scheme your service provider has registered with.

1. Financial Services Complaints

Website: fscl.org.nz
Phone: 0800 347 257

2. Insurance & Financial Services Ombudsman

Website: www.ifso.nz
Phone: 0800 888 202

3. Banking Ombudsman

Website: www.bankomb.org.nz
Phone: 0800 805 950

4. Financial Dispute Resolution Service

Website: www.fdrs.org.nz
Phone: 0508 337 337

Credit Reporting

Your credit record

There are three credit reporting companies that 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.

1. Centrix – www.centrix.co.nz – 0800 236 874
2. Illion – www.illion.co.nz – 0800 733 707
3. Equifax – www.equifax.co.nz – 0800 698 332

Personal Properties Securities Register (PPSR)

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.

Website: www.ppsr.companiesoffice.govt.nz

Privacy Commissioner

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

Website: www.privacy.org.nz
Email: enquiries@privacy.org.nz
Phone: 0800 803 909

To make a complaint online: go to the website above and select “Your rights tab” then “Complaining to the Privacy Commissioner”

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