Your Law - Bankruptcy and Insolvency

Bankruptcy writes off your debts. It however results in severe financial restrictions and personal repercussions. Relationships with business acquaintances and friends may be damaged.

It is important to seek professional advice.

Alternatives to bankruptcy include:

• A creditors' pool. If your creditors' agree set up a creditors' pool and an affordable payment structure. Ask creditors if they will accept part of the debt in final settlement. A reliable independent person such as a business mentor should run the creditors pool.
• Reducing outgoings by cancelling hire purchase, pay TV etc.
• Restructuring your debts by obtaining a mortgage and repaying higher interest debts.
• Selling assets.
• Summary instalment order. If you owe less than $12,000 apply to the District Court for a summary instalment order. This lets you pay your debts in stages without the threat of further legal action. Contact Budget advisory services for more information.
• Trade out of problems if professional advice determines they are of a short-term nature.

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If bankruptcy is your only option you file for bankruptcy by lodging a "debtor's petition" with the High Court. You fill out a form and pay a fee (currently $40).

A creditor can apply to the High Court to have you declared bankrupt through a "creditor's petition". Before doing so they need to have obtained a District or High Court judgment against you for a debt of more than $200.

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The Official Assignee, part of the New Zealand Insolvency and Trustee Service, acts as trustee, administering the debts you incurred up to your bankruptcy. Creditors deal with the Official Assignee.

Your bankruptcy is advertised in a local newspaper and the New Zealand Gazette. You remain liable for hire purchase and mortgage payments (but the Official Assignee may require you to sell the assets); court fines or court orders for reparation; maintenance and child support payments; and debts incurred after the date of your bankruptcy.

Access to Government Departments:

Insolvency & Trustee Service (Ministry of Economic Development)

Private Bag 4714, Christchurch
Tel: + Free 0508 467 658, Fax: + 64 3 962 6200

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The consequences of bankruptcy are:

• Bank accounts and credit cards: You can have your own bank account but not any credit cards.
• Businesses: You cannot manage a company or to become a business partner, self-employed or employed by your family members. You need consent to be employed by any company, trust, or incorporated society which is managed or controlled by a relative.
• Credit: If you apply for more than $100 credit you must disclose that you are an undischarged bankrupt. Income deductions for creditors: If you are working the Official Assignee will determine how much you must pay to creditors. If your only income is a benefit, none will go to creditors. Your partner's income is not affected. Inheritances will be used to pay your debts.
• Investigation of past financial transactions. Gifts and other disposals of assets made in the last 3 years can be set aside. If you were insolvent when you made the disposal the period is extended to 5 years.
• Overseas travel requires the Official Assignee's consent, and changes of address must be notified to them.
• Sale of assets: Your home, car, expensive chattels, life Insurance policies and super schemes, may be sold to pay creditors. Legally you can only keep furniture and personal effects to a total value of $2000; $400 in cash; and tools of trade with a value of up to $500.

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You are normally "discharged" from bankruptcy after three years. You can apply to the High Court for an earlier discharge.

This frees you from most of bankruptcy's restrictions. The Court may impose conditions or disqualifications on you running a business.

Your bankruptcy remains on your credit files for seven years. Most lenders will not lend to you. Your employment options will be limited. Your name will also appear indefinitely on the publicly accessible database of the New Zealand Insolvency and Trustee Service.

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