How bankruptcy works
Bankruptcy is a legal insolvency process that clears most of your unsecured debts, including student loans.
On this page
Who bankruptcy is for
You can become bankrupt if you owe more than $1,000 in unsecured debt, and it’s the only formal option for people who owe more than $50,000. Unsecured debt is any debt that isn’t linked to a specific asset.
Before considering any formal insolvency procedure, you should look at your options on other ways to manage debt.
Other ways to manage your debt
If you owe less than $50,000 you should look at a No Asset Procedure (NAP) or Debt Repayment Order (DRO) first.
How bankruptcy affects you
Bankruptcy is a last resort if you are facing large debt. It can have many impacts on your life and limit your access to some services.
It can affect:
- your credit rating
- your ability to borrow money
- your employment
- your freedom to travel
- your ability to access utility services
- your banking services
- your privacy — you will be listed on a public register.
How long bankruptcy lasts
Bankruptcy usually lasts 3 years from the time we receive your Statement of Affairs.
More information on Statements of Affairs
Your bankruptcy may last longer than 3 years. For example, if:
- a creditor or the Official Assignee objects to your discharge
- you have not completed a Statement of Affairs.
When your bankruptcy ends you will be discharged and your status in the Insolvency Register will automatically switch from ‘Current’ to ‘Discharged’. Your details will stay on the Register for 4 years after you have been discharged.
Note — If you have already been bankrupt or in a No Asset Procedure and then you become bankrupt again, your details will stay on the Insolvency Register permanently.
Becoming bankrupt
There are 2 main ways you can become bankrupt – you can apply for bankruptcy for yourself (debtor’s application), or the court may make you bankrupt (creditor’s application).
Applying for bankruptcy (debtor’s application)
If you owe more than $1000 that you cannot pay back, you can apply for bankruptcy. Before applying, think about whether a No Asset Procedure (NAP) or a Debt Repayment Order (DRO) might be the right choice for your situation.
You can apply for bankruptcy on our website.
Applying for bankruptcy (debtor’s application)
Made bankrupt by the court (creditor’s application)
If you owe someone money you have not paid back, they can apply to make you bankrupt through the court.
If this happens, we will send you a ‘Notice to Bankrupt’ letter confirming that you have been made bankrupt. You will need to complete a Statement of Affairs as soon as possible. Once you file the Statement of Affairs your 3-year period of bankruptcy begins.
What assets and debts are included
Bankruptcy only clears your unsecured debts. Unsecured debt is money you owe that isn't linked to a property or asset. This means if you can't pay it back, the creditor can't take something you own to cover the debt.
Secured debt is debt linked to an asset. This is excluded because the creditor can repossess the asset and sell it to get their money back if you don’t pay.
What debts are included in your bankruptcy
When you become bankrupt the Official Assignee will take control of most things you own (your assets) to pay back the people you owe (your creditors). Not all your assets are included in the bankruptcy process.
The Official Assignee
If you become bankrupt the Official Assignee manages your bankruptcy. They take control of most of your assets and can use them to pay back the people you owe money to.
The Official Assignee’s work is managed by the New Zealand Insolvency and Trustee Service. During your bankruptcy, you will mainly deal with an Insolvency Officer.
Statement of Affairs
A Statement of Affairs is a form that tells us your financial situation, including assets, debts, income, and expenses.
When you apply for bankruptcy, you will complete your Statement of Affairs as part of your application.
If you are made bankrupt by the Court, we will send you a letter about completing your Statement of Affairs. You will stay bankrupt for 3 years from the date that we receive your Statement of Affairs. You must complete it to have your bankruptcy end.
It’s up to you to make sure that your Statement of Affairs form has been filed with us.
Bankruptcy when living overseas
You can still become bankrupt if you are living overseas. If you owe money to creditors that are not based in New Zealand, they can continue to chase you for any money you owe them.
If you are declared bankrupt while overseas, your assets in New Zealand become the property of the Official Assignee. If you have assets outside of New Zealand, the Official Assignee may have your New Zealand bankruptcy recognised in the overseas country and may deal with your overseas assets as well.
You can return to New Zealand from overseas at any time during your bankruptcy, but if you want to leave New Zealand again you will need to apply for the Official Assignee’s permission.
The Insolvency Register can be searched from overseas and your credit rating outside New Zealand may be affected if you become bankrupt.
I owe more than $50,000 that I can’t manage (video)
Jono and Sarah talk about their financial challenges and explore the impact that bankruptcy will have on their individual circumstances.
Video transcript: I owe more than $50,000 that I can’t manage
[Audio: Gentle music.]
[Visual: Background is 3 geometric triangular shapes in teal, turquoise and coral colours. New Zealand Insolvency and Trustee Service branding in white in the middle of the page.]
[Visual: White writing changes to read ‘I owe more than $50,000 that I can’t manage’.]
[Visual: Screen switches to the presenter standing in a living room setting. In the bottom right corner of the frame, a New Zealand sign language interpreter translates throughout the video.]
[Audio: Presenter speaks.]
Presenter: No one wants to be in a position where they can’t repay their debts. It can put a lot of stress on you and your whanau. But there is help available if you’re facing financial difficulties and can’t seem to get on top of things.
If you owe more than $50,000 in unsecured debt that you just can’t repay, bankruptcy might be the right insolvency option for you.
The good news is that once you’re bankrupt, creditors can’t keep chasing you for payment, which can provide some relief.
[Visual: Teal box appears in top right-hand corner of the screen with white writing reading ‘Bankruptcy typically lasts for 3 years’.]
Presenter: Bankruptcy typically lasts for 3 years, and once it’s over, most of your debts will be wiped clean.
[Visual: Turquoise box appears in top right-hand corner of the screen with white writing reading ‘Debts excluded:
- Court fines and reparations
- Child support or maintenance
- Debts incurred by fraud’.]
Presenter: However, it’s important to know that some debts, like court fines and reparations, child support and maintenance payments won’t be included in your bankruptcy. You will need to keep paying those debts even when you’re bankrupt.
[Visual: Screen switches to Jono sitting in at a table with bills and invoices spread out in front of him.]
[Visual: Turquoise box appears at lower left-hand corner of the screen. White writing reads ‘Over $50,000 unsecured debt’.]
[Audio: Jono speaks and sighs.]
Jono: Things have been really hard recently, and my debts are getting on top of me.
[Visual: Turquoise box appears at the top right-hand corner. White writing reads ‘Jono has debt from:
- Mortgage
- Utility Bills
- Debt consolidation loan
- Credit cards’.]
Jono: I had a good job, but I got laid off a few months ago and I’ve been struggling to scrape together the money to pay my bills ever since. My mortgage payments have fallen behind, and I’ve been missing my utility bills too now. Now I’m getting penalty and interest charges on top of everything else!
[Visual: Both turquoise boxes close from the screen.]
Jono: I already have a debt consolidation loan, but everything is so expensive these days! I’m using my credit card to buy food and fuel, but because I can’t clear the balance each month, the interest just keeps adding up.
All up, my debts come to over $50,000 now. I just don’t know what to do.
[Visual: Screen switches back to the Presenter.]
[Audio: Presenter speaks.]
Presenter: Thank you, Jono, for sharing your experience. It’s tough when life throws unexpected challenges your way, and debt can quickly become overwhelming.
With over $50,000 owing, bankruptcy is the only formal insolvency option available to you. It offers a fresh start, but it’s essential to understand its implications.
[Visual: Turquoise box appears in the top right-hand corner. White writing reads ‘Bankruptcy will show on
- Public insolvency register
- Credit reporting sites’.]
Presenter: Your name will be on the public Insolvency Register throughout your bankruptcy period and for 4 years after your discharge.
[Visual: Turquoise box closes from the screen.]
Presenter: Your credit rating will also be affected for up to 7 years. This is the usual length of time that your name will appear on the Insolvency Register, but some credit agencies operate public websites, and they may keep your credit history for longer than 7 years. This may affect your access to some banking or money lending services.
If you apply for bankruptcy, the Insolvency and Trustee Service, acting for the “Official Assignee”, will look after your bankruptcy. They will contact everyone you owe money to on your behalf.
[Visual: Screen switches back to Jono.]
[Audio: Jono speaks.]
Jono: It would be a relief to not have to deal with my creditors anymore. I feel bad about the whole situation, and I just don’t think I can face them.
What would happen to my car, and more importantly, my house if I go bankrupt?
[Visual: Screen switches back to the Presenter.]
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘You can keep:’]
[Visual: White writing appears in the turquoise box from the right reads ‘Vehicle below $6,500’.]
[Audio: Presenter speaks.]
Presenter: You can keep your car as long as its value is below $6,500.
[Visual: In turn white writing appears in the turquoise box from the right reading ‘$1,300 in the bank’, ‘Basic household furniture’ and ‘necessary tools of trade’.]
Presenter: You’ll also be able to keep up to $1,300 in the bank, most of your household furniture, and any necessary tools of trade.
[Visual: Turquoise box disappears to the right.]
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Your house’ and ‘Considered an asset’.]
Presenter: However, your house will be considered an asset in your bankruptcy, even if you’re still paying off your mortgage.
[Visual: In turn white writing appears in the turquoise box from the right reading ‘Equity will be assessed’ and ‘May be sold’.]
Presenter: If there’s equity in the property, the Official Assignee may sell it to help pay back your creditors. They will contact your bank to find out how much is owing on the mortgage and decide on the appropriate course of action from there.
[Visual: Teal box disappears to the right.]
Presenter: Remember, you must be transparent about your assets. You’ll need to declare any assets you have to the Official Assignee in a Statement of Affairs. The Official Assignee will then assess their value and decide on the necessary actions.
[Visual: Screen switches back to Jono.]
[Audio: Jono speaks.]
Jono: What happens to my student loan when I’m bankrupt? Until I lost my job, repayments were automatically taken out of my wages. Will that start up again when I find another job?
[Visual: Screen switches back to the Presenter.]
[Audio: Presenter speaks.]
Presenter: Your student loan will be included in your bankruptcy debts. You won’t need to make any repayments towards it while you’re bankrupt, and at the end of your bankruptcy, just like the other debts included in your bankruptcy, your student loan will be wiped clean.
[Visual: Screen switch to Jono.]
[Audio: Jono speaks.]
Jono: One more thing – will the Official Assignee manage my bank account when I’m bankrupt. Will they tell me what I can and can’t spend money on? I couldn’t imagine that.
[Visual: Screen switches back to presenter.]
[Audio: Presenter speaks.]
Presenter: I understand your worries, and it’s natural to have questions about the Official Assignee’s role during bankruptcy.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Official Assignee’s role:’]
[Visual: White writing appears in the turquoise box from the right reading ‘Won’t manage your bank account’.]
Presenter: The Official Assignee won’t manage your bank account. You’ll still have control over your day-to-day spending.
[Visual: White writing appears in the turquoise box from the right reading ‘Be aware of income, expenses and assets’.]
Presenter: But they will need to be aware of your income, expenses, and assets. Part of the Official Assignee’s role is to ensure a fair distribution of available funds to your creditors.
[Visual: Turquoise box disappears to the right.]
Presenter: So they will look at how much you earn and assess whether you’re in a position to be able to make regular repayments towards your debts during your bankruptcy period.
Your bank will have the biggest influence on how you can manage your money.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Your Bank may:
- Close your account
- Limit how you use their services’.]
Presenter: The bank may close your accounts or limit how you use them. For example, you might not have access to internet banking, or you may not be able to have a credit card or debit card.
[Visual: Turquoise box disappears to the right.]
Presenter: You may also find that it’s harder to get credit after you’ve been discharged. Each bank has its own policies in regard to bankruptcy.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘It’s a good idea to:
- Talk to your bank first
- Consider future banking needs’.]
Presenter: So, it’s a good idea to talk to your bank beforehand to understand how you might be affected.
[Visual: Turquoise box disappears to the right.]
[Visual: Screen switches to Sarah, sitting at a desk in a working from home setting.]
[Audio: Sarah speaks.]
Sarah: I own my own business and lately it’s been tough.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Sarah has debt from:
- Inland revenue debt
- Penalties
- Interest’.]
Sarah: My Inland Revenue debt has piled up, and I realised 6 months ago that I needed help. I went to see Inland Revenue about a payment arrangement, but between my original debt, penalties, and interest, it just wasn’t an option anymore.
[Visual: Turquoise box disappears to the right.]
Sarah: I had let things go on for too long before acting, and now it’s all caught up with me.
It was all too overwhelming at the time, and now the Inland Revenue has put me into bankruptcy. What happens now?
[Visual: Screen switches back to the Presenter.]
[Audio: Presenter speaks.]
Presenter: Thank you, Sarah for opening up about your situation. Facing financial challenges can be difficult, but we’re here to guide you through this process.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Statement of Affairs’.]
Presenter: The first thing you must do now that you’re bankrupt is complete a Statement of Affairs.
[Visual: White writing appears in the turquoise box from the right reading ‘Assets, liabilities, income and expenses’.]
Presenter: A Statement of Affairs is crucial, as it lists your assets, liabilities, income, and expenses.
[Visual: White writing appears in the turquoise box from the right reading ‘Affects your discharge date’.]
Presenter: You can fill out this form online, and it’s really important that you do this as soon as possible, as it will affect the date that you’re discharged from bankruptcy in the future. Putting off completing the form, means you’ll stay bankrupt for longer.
[Visual: Turquoise box disappears to the right.]
[Visual: Screen switches to Sarah.]
[Audio: Sarah speaks.]
Sarah: I appreciate the information, but my business is my livelihood. I’m really worried about its future during my bankruptcy. Can I continue to be self-employed now that I’m bankrupt?
[Visual: Screen switches back to the Presenter.]
[Audio: Presenter speaks.]
Presenter: Good question, Sarah.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Approval is required to:
- Be self employed’.]
Presenter: You need approval from the Official Assignee to be self-employed once you’re bankrupt. You can make an application to the Official Assignee, and it will be assessed on your individual circumstances.
[Visual: In turn white writing appears in the turquoise box from the right reading ‘Manage a business’ and ‘Be employed by a relative’.]
Presenter: While you’re bankrupt, you won’t be able to serve as the director of a company, and you also need the Official Assignee’s consent to manage a business or to be employed by a relative.
[Visual: Turquoise box disappears to the right.]
[Visual: Screen switches to Sarah.]
[Audio: Sarah speaks.]
Sarah: I’m finding this all pretty stressful and I don’t have a lot of family around. Can I go and visit my mum in Australia? Her home cooking always makes me feel better.
[Visual: Screen switches back to the Presenter.]
[Audio: Presenter speaks.]
Presenter: Support from family can make a world of difference.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘Approval is needed to travel overseas’.]
Presenter: However, while you are bankrupt the Official Assignee needs to approve any overseas travel. It’s best to submit an application and obtain the necessary approval before making any travel plans.
[Visual: Turquoise box disappears to the right.]
Presenter: Bankruptcy comes with some restrictions, but it does offer a way out from unmanageable debt. Once you’re discharged, you won’t have these debts hanging over you anymore. You’ll have a fresh start, free from the burden of debt.
[Visual: Screen switch to presenter.]
Presenter: For more information about your insolvency options, go to insolvency.govt.nz(external link).
[Visual: Turquoise box appears in the lower left-hand corner of the screen providing the website address. White writing reads ‘insolvency.govt.nz’.]
Presenter: Remember, bankruptcy is a significant step and it’s crucial to consider all options and seek professional advice before deciding.
[Visual: Turquoise box disappears to the left.]
Presenter: There may be other alternatives that better suit your unique situation.
[Visual: Turquoise box appears in the top right-hand corner of the screen. White writing reads ‘MoneyTalks’ with the contact telephone number ‘0800 345 123’.]
Presenter: MoneyTalks is a free helpline offering budgeting advice to individuals, family and whānau. They can put you in touch with financial mentors who can help you understand your financial situation, organise your debt and plan for the future. Call 0800 345 123.
[Visual: Screen switched to teal background.]
[Audio: Gentle music.]
[Visual: Teal and white New Zealand Insolvency and Trustee Service branding and Digital Boost branding show in top corners of the screen.]
[Visual: Appearing slowly white writing reads ‘Want to know more? Insolvency.govt.nz’.]
[Visual: Teal background with the Ministry of Business, Innovation and Employment and New Zealand Government brandings in white.]
[End of video.]