What are the consequences of entering an insolvency procedure?

Consequences of entering an insolvency procedure

If you are considering one of the insolvency procedures outlined on this website such as bankruptcy, a No Asset Procedure or a Summary Instalment Order, to help with your financial difficulties then you need to consider what impact your decision will have.  Entry to any of the above insolvency procedures is not a decision that you should take lightly.  For every decision you make there will inevitably be consequences.

Credit History

Your entry to an insolvency procedure will be published on the Insolvency Register found on the Insolvency and Trustee Service website.  This site is accessible by the public but more importantly credit information agencies.  These credit information agencies obtain details of your entry to an insolvency procedure and add it to your credit file.  Any person or company thinking about giving you finance such as a bank for an overdraft or a finance company for a car loan will search your credit file to confirm how much of a credit risk you are.  They will use the information contained in your credit file to help decide whether they are prepared to provide you with an overdraft, a car loan or a mortgage.

A record of your bankruptcy and No Asset Procedure will remain on the Insolvency Register for four years after your discharge.  A record of your entry to a Summary Instalment Order will remain on the Insolvency and Trustee Service website until the end of your Summary Instalment Order.  A record of your insolvency, whether it is bankruptcy, entry to a No Asset Procedure or Summary Instalment Order may remain on your credit file for up to seven years from the date of your insolvency.

If you have entered bankruptcy two or more times or have entered a No Asset Procedure then bankruptcy, a record of your entry to each of these insolvency procedures will remain on the Insolvency and Trustee Service website indefinitely.

We advertise on our website your acceptance into bankruptcy, a No Asset Procedure or Summary Instalment Order and these public notices remain online for the duration of your insolvency option and 4 years after the date of your discharge. It is possible because of this that a record of your entry into bankruptcy, a No Asset Procedure or Summary Instalment Order will appear in a Google search for the life of your bankruptcy, No Asset Procedure or Summary Instalment Order and after your discharge.

For further information about privacy; please refer to the website of the Office of the Privacy Commissioner.

During and after discharge from bankruptcy or a No Asset Procedure, you may find it difficult to find a bank or other lending institution prepared to provide you with finance to purchase items such as a car or home.  Your credit rating will need to be built back up.  You can do this by getting a small item on hire purchase and build your credit rating back up.  You need to provide potential lenders with the confidence to provide you with finance.  That confidence will only be restored when you have built up a solid credit history.  In time, you should be able to build up a sufficiently strong credit history to enable a lender to provide you with finance to purchase bigger items such as a car or a home.  Ultimately, it will be up to the lender to decide whether to offer you finance.

For more information on credit scores visit the Veda Advantage website.

To obtain a copy of your credit file for free visit www.mycreditfile.co.nz.

IRD Number

Upon entry to bankruptcy, the IRD will cancel your existing IRD number and issue you with a new one. You need to make sure that you inform your employer and bank of the new IRD number.  This only affects debtors who are bankrupt.  Those in a no asset procedure or a summary instalment order will retain their existing IRD number.

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.

All tax refunds due and payable in the period prior to bankruptcy and prior to discharge from bankruptcy are payable to the Official Assignee for the benefit of creditors.  These funds will be applied towards the bankruptcy filing fee of NZ$200 and the cost of administering your estate.  You can apply for any surplus that remains after these costs and all creditor claims are paid.  The Official Assignee will consider your application for these funds on a case by case basis.

Bank Accounts

Any bank accounts that you may have had prior to entry to bankruptcy or a No Asset Procedure may be closed by your bank once they become aware of your insolvency.  This will be due to the bank’s own policy.  The Insolvency and Trustee Service has no say in what services a bank might be prepared to offer you once you have been adjudicated bankrupt or have entered a No Asset Procedure.  That is a matter solely for the bank.  If your bank does close your accounts, then you should look to open new accounts elsewhere.

Employment

In addition to compromising your credit history, entry into bankruptcy or a No Asset Procedure may also compromise your job security or future opportunities.  These insolvency procedures are an indication that you have reached a point where you are unable to pay your creditors; that you are insolvent.  Employers may consider your bankruptcy or entry into a No Asset Procedure as a risk to their business or organisation and may choose to end your employment as a result, or may choose not to take you on as a new employee.  You should seek independent legal advice if your employer chooses to end your employment upon learning that you are bankrupt or have entered a No Asset Procedure.