Bankruptcy may be a good insolvency option for you if you owe more than $47,000.
What it is
Bankruptcy is a way to clear your debts if there's no way you can pay back the people or organisations you owe money to.
It's not an easy way out — entering bankruptcy means the Official Assignee has control over everything you own (except things like your clothes and household appliances), and can sell them to pay off your debts.
Who it's for
You can become bankrupt if you owe more than $1,000, but it's best for people who owe more than $47,000.
If you owe less than $47,000 you should consider a Debt Repayment Plan (Summary Instalment Order or SIO) or a No Asset Procedure instead.
What if you live overseas
If you are living overseas you can still become bankrupt. Creditors that are not based in NZ will be sent a report if they are listed in your bankruptcy, but they can continue to chase you for any money you owe them.
Your assets in New Zealand become the property of the Official Assignee. If you have assets outside of NZ, the Official Assignee may have your NZ bankruptcy recognised in the overseas country and may deal with those assets also.
You can return to NZ during your bankruptcy, but if you want to leave again you will need to apply for permission.
The public register can be searched from overseas. Several credit reporting companies operate in more than one country so your credit rating outside of NZ may be affected.
How it works
You can apply for bankruptcy yourself (debtor's application), or a creditor can ask the court to make you bankrupt (creditor's application). You can be bankrupt more than once in your life.
Once you're bankrupt, creditors can't chase you for any included debt or add any further penalties or interest to the debt you owe.
Bankruptcy usually lasts for three years from the date that you supplied a completed Statement of Affairs, unless an objection to your discharge has been lodged in which case you will be informed separately. Discharge is an automatic process and your bankruptcy status in the Insolvency Register will change from 'Current' to 'Discharged’.
- help the Official Assignee and provide all records and information you’re asked for
- notify the Official Assignee and your Summary Instalment Order Supervisor if you change your:
- name, e.g. if you get married
- terms of employment
- income and/or expenditure
- keep filing tax returns.
You must not:
- take on any new debt over $1,000 without telling the new creditor that you're currently bankrupt. This should be done in writing to avoid any misunderstandings
- be a director of a limited liability company
- fail to provide information or lie to the Official Assignee
- hide assets
- try to prevent the Official Assignee from dealing with any of your assets.
You need to get permission:
- to leave New Zealand
- to take part in the management or control of any business (this includes if you file your own taxes, ACC levies or workplace insurance, or you’re responsible for meeting any regulations, e.g. health and safety requirements)
- to be self-employed or employed by a relative or a relative’s business.
You can be prosecuted for breaking any of these rules.
Once you're adjudged bankrupt, creditors can't continue to chase you for any debt included in your bankruptcy.
On discharge from your bankruptcy, you are released from most of the debts included in your bankruptcy and you don't have to pay any more of the outstanding amount owed to the creditors included in your bankruptcy.
Your bankruptcy will include all debts that you owe at the date of your adjudication unless specifically excluded below.
- contingent debts — e.g. when you sign as guarantor for a friend’s finance agreement. You don’t have to pay any money now but you might have to repay the debt in the future if your friend doesn't pay. These debts are included in your bankruptcy, but will only be paid from proceeds if the contingency actually arises.
- joint debts — if you owe a debt jointly with another person, the creditor has the right to claim the full amount from either person. So while you are released from the debt on your discharge, the other person is not.
- overseas debt — Any debts owed to a creditor that is based overseas are included in the New Zealand bankruptcy. However, if you return to the country where the liability was incurred then that creditor is able to recover any of the debt that you still owe in that country.
Certain debts are not included in your bankruptcy by law. You must continue to pay any:
- court fines and reparation
- debt that you incurred after applying for bankruptcy
- secured creditors and secured debt – if you wish to retain those items.
Some debts are not released when you are discharged from your bankruptcy. You may be required to pay:
- Debts incurred fraudulently
- Child Support or maintenance.
Secured debts are any debts where the creditor can repossess your property if you stop making payments.
For example, if you stop making the arranged payments for a car you bought on finance, the creditor can repossess the car under the finance agreement.
Secured debt is excluded from bankruptcies because the creditor can repossess the property if you don’t pay, and sell it to get their money back. If there's still money owing after they've repossessed and sold the property, that amount becomes an unsecured debt and is then included in the bankruptcy.
When you become bankrupt your assets transfer to the Official Assignee so that they can be sold to help repay your debts — this includes superannuation funds. You can be prosecuted if you don't tell the Official Assignee about all your assets.
While you're bankrupt, you can keep:
- tools needed for your work (up to a certain value)
- necessary household furniture and effects (up to a certain value)
- a motor vehicle worth up to $6,000
- money up to a maximum of $1,200
- items on hire purchase — but you'll have to continue making payments.
- own a business - it's likely that the business will be shut down by the Official Assignee and any assets will be sold to pay your creditors.
- own a house - it may be sold to repay your creditors. This will depend on whether there is any equity in the house (it's worth more than the mortgage(s) owed on it). If your property is owned jointly with another person, the Official Assignee will talk with that person when deciding how to deal with your share of the property. You must continue to make mortgage repayments and pay rates and insurance on the property while the Official Assignee is making the decision on whether to sell your share or not.
- own a term life insurance policy – if it has no surrender value you can choose to continue to pay the premiums but if a claim is made during your bankruptcy the funds will be used to repay your creditors. If this happens you may be able to claim a refund of the premiums you paid. You can choose to let the policy lapse instead, or someone else could purchase the policy from the Official Assignee if it might be difficult to replace (due to age, medical conditions, or increased premiums). If the policy has a surrender value then it’s likely that it will be sold to repay your creditors.
- are owed any money - you must tell the Official Assignee. If any money is paid directly to you, it must be given immediately to the Official Assignee.
If you have already been bankrupt or in a NAP and then you become bankrupt again, the record of all your procedures will stay on the Insolvency register permanently.
Impact of a Bankruptcy
Although a bankruptcy can help to resolve your financial problems, it will have a wider impact on your everyday life.
Usual life cycle of a Bankruptcy
How to apply
How to apply online
1. Make sure you understand the consequences and impact
2. Use the checklist to make sure you've got everything you need for the application
View the Checklist [PDF, 252KB]
3. Register as a user of the website by going to the Do It Online tab
4. Make your application by following these steps:
- Complete the application (Statement of Affairs) — you'll need to include all money that you owe, both secured and unsecured.
- When you finish entering information, the system will use it to show you any other insolvency option(s) — you can change if you want to. Or, you can save your application and get advice before you finish.
- Submit your application.
- You will need to sign a Verification page which you need to complete and return to the Insolvency and Trustee Service. You can choose to have this emailed to you so that you can print it or you can choose for it to be posted to you.
- Wait for the Official Assignee's decision. You should get a written answer within 10 working days, including a reason if your application is rejected. If you provide a mobile phone number, you'll get a text message when your application is received and another one when it's been accepted or rejected.
Note: It's quickest and easiest to apply online. But, if you'd rather apply manually, you can download the application form from Forms.
After you've applied
- You'll hear from us within 10 working days.
- For privacy reasons your application won't be put on the public register unless it is accepted.
- Until your application is accepted you'll need to keep dealing with your creditors and make payments as normal.
- If we need any extra information from you, we'll contact you. If you don’t provide the information quickly, your application may be rejected.
After your Bankruptcy application is accepted
Once your application is accepted, it is important to note that:
- your details will appear on our website.
- all your creditors will be sent a report. They can log onto our website to get updates after the first report is sent.
- you should contact your secured creditors and arrange to either:
- keep making payments under the agreement or
- arrange for the secured item to be returned/repossessed. You can then stop making any payments under the agreement. They can claim against you for any unpaid amount.
If creditors keep chasing you
You can check your estate details on our website to make sure we've been told about the creditor. (You should have been sent a code and instructions for setting up an account when your bankruptcy started, if you didn’t already have a username and password.)
- Search the Insolvency Register for your own name.
- Click on your name (in blue and underlined) to see the basic details screen.
- Click the More Info button to see details of the claims and check whether the creditor is on the list.
If the creditor is not listed against your estate, give your estate officer their details so that they can be contacted and given a chance to file a claim.
If creditors keep chasing you for payment then give them your estate (insolvency) number and ask them to contact your estate officer. They can also search for your insolvency details on our public register.
How to cancel attachment orders or direct debits
Once you have entered bankruptcy you need to cancel any direct debits, unless the type of debt isn’t included in your bankruptcy, e.g. court fines, Child Support. The Official Assignee cannot cancel the direct debit for you. You will need to contact your bank.
If you have an attachment order over your wages for a debt that is included in your bankruptcy, your creditor should tell your employer to stop making the deductions once they receive the report from the Official Assignee. If this does not happen you need to take a copy of your bankruptcy acceptance letter to the District Court that made the order and ask them to cancel the order.
Apply for permission from the Official Assignee
You must apply to the Official Assignee for permission to:
- leave the country, even if it's just temporarily.
- be self-employed, or involved in the running of any business — your application needs to include details of an independent person with financial experience who has agreed to monitor your financial affairs and make sure that you meet all your tax and financial obligations. You should include a letter from them confirming this.
You are considered to be self-employed if you are responsible for paying income tax, GST, ACC or any other tax for yourself or any employees; if you are paid on commission (including if you get wages but also commission that doesn’t have PAYE paid); or if you pay withholding tax eg if you are a building contractor or real estate agent.
You are considered to be involved in management if you are involved in decisions or policies about the finances or business of the company, or if you do more than carry out decisions as an employee. If you are unsure, please ask your Insolvency Officer.
- be employed by a relative (or a company or trust they control). A relative includes your parent, spouse, child, brother, or sister, and also your spouse’s parent, child, brother, or sister. And your spouse includes your husband, wife, and de facto or civil union partner.
Download a consent form
Annulling a bankruptcy
An annulment is a cancellation of a bankruptcy. An annulment can be granted by the Official Assignee or the court if:
- you should not have been declared bankrupt
- you have fully paid or satisfied all your debts and the Official Assignee's fees and costs
- there has been a substantial change in your financial circumstances since the date you were made bankrupt and you can now pay your debts
- the court has approved a composition.
A bankrupt can apply for an annulment at any time. Because this is a legal process, you should get expert advice before applying.
An application for annulment is made either to the Official Assignee if you applied personally for bankruptcy or to the High Court, if you were bankrupted on the application of a creditor.
Early Discharge from a bankruptcy
You can apply to the Court for a discharge at any time during your bankruptcy. The Court will decide whether to discharge you or not, and whether to add any conditions eg that you can’t be in business for a period of time. Because this is a legal process, you should get expert advice before applying.
Follow the progress of your bankruptcy online
Once your creditors have been notified of your bankruptcy, some details of your file will be available on this website. You can log in to see your file and track the progress of your bankruptcy.
- If you applied for bankruptcy online, you can use the same details to log in and look up your file.
- If you applied manually, you should have received an activation code or link with the written confirmation of your acceptance into bankruptcy. You can use this activation code to activate your account on the website.
Accessing your file
- Once you’ve logged in, scroll to top of page and click on Insolvency Register in the header of website.
- Enter your estate number or your name, and click Search.
- Click on your name when it appears in blue - this will show you basic information about your file. This information is also available to the general public.
- View extra information about your file by clicking on the More info tab at the top of the page.