What you need to know

On the date you become bankrupt all debts except those excluded by law will be ‘provable’ debts in bankruptcy.  These creditors can submit a claim for the debt in your bankruptcy.

Creditors holding security over assets may still repossess and sell assets on hire purchase or subject to security.  If you are concerned about a creditor threatening to repossess all of your personal effects and belongings if payment is not made, please visit the Ministry of Consumer Affairs website.

Student loans are provable in bankruptcy.

Unsecured and secured debt

A secured debt is any debt where the creditor has the right to repossess a previously specified item of property if they are not paid.  For example, a hire purchase agreement for the purchase of a motor vehicle.  Failure to continue to make the monthly payments to the secured creditor (usually a finance company) will lead to a default under the hire purchase agreement which then entitles the secured creditor to take steps to repossess that motor vehicle.  The motor vehicle is repossessed and sold by the secured creditor to get their money back.  If you are concerned about a secured creditor threatening to repossess all of your personal effects and belongings if payment is not made, please visit the Ministry of Consumer Affairs website.

Equally, a mortgage is a secured debt.  The bank that provides the money to purchase a house takes a security called a mortgage over the property purchased.  If there is a failure to pay the mortgage, the bank or mortgagee can take steps to sell the house to get their money.  Secured property is often referred to as ‘collateral’.

An unsecured debt is when there is no security (or collateral) held by the person or company that provides the money to buy goods or services.  Unsecured debts can include credit cards, rent, power accounts, overdrafts or unpaid taxes.

You need to know which debts are secured and which are unsecured as they are treated differently upon entry to bankruptcy, a No Asset Procedure or a Summary Instalment Order.

Student loan debt

If you have a student loan, this will be included in your bankruptcy. You do not have to repay your student loan after you have entered bankruptcy.  If student loan repayments have been deducted automatically from your wage or salary prior to entry to bankruptcy, then you should contact the IRD to change your tax code.  Changing your tax from one with student loan repayments to be made to one without a student loan will avoid you making payments to the IRD on your student loan after you have entered bankruptcy.  Any student loan repayments made to the IRD after entry to bankruptcy vest in the Official Assignee and will be returned to the Official Assignee for the benefit of your creditors.

Joint debt

In the case of a debt that you owe jointly with another person (joint debt), a creditor has the right to claim the loan balance from each person who signed the loan contract. Each person is responsible for full payment of the debt.

The debt you owe will be covered by your bankruptcy or no asset procedure. However, if the other person who has signed the loan contract is not bankrupt or in a no asset procedure, the creditor can still pursue the other person for the full amount of the debt.

If you are unsure if the debt you have is jointly owed you should seek legal advice from your local Community Law Centre.

Overseas debt

If you owe money to a creditor that is based overseas, you can include them in your list of creditors when completing your Statement of Affairs.  Although the creditor is based overseas, they can still be included in your New Zealand-based bankruptcy.  The creditor cannot pursue you for payment in New Zealand.  However, be aware that if you return to the country where the overseas creditor is based, the fact that you were bankrupt in New Zealand does not prevent that creditor from pursuing you for payment.  Your bankruptcy only applies in New Zealand and does not extend to overseas countries. 

FAQs

What happens to my debts after I'm discharged from bankruptcy?

What debts am I still liable for?

What about debt I owe to Work and Income?

A friend/family member signed as guarantor on my loan. How will they be affected after I apply for an insolvency procedure?

Can I still get credit?

How do creditors claim their debts?

Can creditors repossess goods?

Do I have to keep paying my power and phone?

What about my rent?

What happens to my debts after I am discharged from bankruptcy?

Discharge from bankruptcy releases you from all provable debts which existed at the date of bankruptcy.  These debts no longer exist and you cannot be pursued by creditors for payment.

Contingent debts are also provable in bankruptcy and you are also released from these upon your discharge. Contingent debts are debts that are not immediately payable but which become payable on occurrence of an event such as default. For example, a guarantor becomes liable for his guarantee only if the debt that is guaranteed does not get paid by the debtor. The guaranteed debt is provable or included in your bankruptcy. If you have provided a guarantee to a creditor on another person’s behalf before the date of your entry to bankruptcy, then it is a provable debt that is included in your bankruptcy.

If a creditor seeks to recover money for a debt included in your bankruptcy contact the Insolvency and Trustee Service.

What debts am I still liable for?

Bankruptcy does not cover all debts.  You remain personally responsible for:

• Fines
• Reparation ordered by a Court
• Maintenance and child support
• Debts incurred after date of bankruptcy.

What about debt I owe to Work and Income?

Work and Income can pursue debtors who have entered bankruptcy for any outstanding Work and Income debt if they are receiving a Work and Income benefit. Work and Income do not pursue debtors who have entered NAP or who have entered bankruptcy and are not on a Work and Income benefit. Should you have any questions about a debt that you may owe Work and Income, please contact their General Inquiries Line on 0800 559 009.

If Work and Income consider that your debt was obtained by fraudulent means, they may continue to pursue you during the period of your bankruptcy or NAP. Debts that are obtained by means of fraud are not extinguished upon discharge from bankruptcy.

If the Official Assignee receives advice from a creditor that you may have obtained a debt fraudulently after you have entered a no asset procedure, then it is possible that the Official Assignee will terminate your NAP.

A friend/family member signed as guarantor on my loan. How will they be affected after I apply for an insolvency procedure?

A guarantor signs a contract promising that they will pay the creditor if you can not. Bankruptcy or a No Asset Procedure does not change this.

When you enter bankruptcy or a No Asset Procedure, the creditor can no longer pursue you for payment but is entitled to pursue the guarantor. The guarantor will need to come to an arrangement with the creditor for payment of the outstanding amount.

Can I still get credit?

It is an offence to incur credit of $NZ1,000 or more without disclosing you are bankrupt.  Provide this information in writing to avoid any misunderstanding.  You may get credit if, after disclosing your bankruptcy, the creditor chooses to extend credit.

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How do creditors claim their debts?

Creditors must complete a claim form and supply documentary evidence of the debt.  The Insolvency and Trustee Service website will provide access to the list of creditors who have filed claims.  If you dispute any debt, contact your Insolvency Officer.

Can creditors repossess goods?

Creditors holding security over assets may still repossess and sell assets on hire purchase or subject to security.  These creditors are required to act fairly and reasonably when seeking to repossess secured items.  If you are concerned about a secured creditor threatening to repossess all of your personal effects and belongings if payment is not made, please visit the Ministry of Consumer Affairs website.

The Official Assignee may require you to voluntarily surrender assets or enter into a new contract to continue with the purchase.

Where the value of the asset is greater than the amount owing, the Official Assignee has discretion to sell the item, repay the debt, and apply any surplus towards your creditors.

Do I have to keep paying my power and phone?

Any electricity or telephone accounts overdue at date of bankruptcy are provable debts.  Electricity or telephone companies are not prevented from discontinuing services so you may choose to pay the debt.  All debts incurred after date of bankruptcy are your responsibility.

What about my rent?

Any overdue rent at date of bankruptcy is a provable debt.  Landlords are not prevented from evicting you from a property so you may choose to pay the debt.  All debts incurred after date of bankruptcy are your responsibility.