Bankruptcy is a formal legal process for individuals who are insolvent, offering a pathway to clear most debts. Governed by the Insolvency Act 2006 and administered by Insolvency & Trustee Services (ITS), bankruptcy is a serious step with long-term consequences.
How Can an Individual Become Bankrupt?
There are two main ways an individual may be declared bankrupt:
- Debtor’s Application
An individual can voluntarily apply for bankruptcy if they owe more than $1,000 in unsecured debt and are unable to repay it. For debts exceeding $50,000, bankruptcy is often the only practical option.
- Creditor’s Application
A creditor can petition the High Court to declare a debtor bankrupt if the debt is greater than $1,000. Upon application, ITS appoints an Official Assignee to manage the bankruptcy process, applying relevant provisions from the Insolvency Act, Companies Act 1993, and Criminal Proceeds (Recovery) Act 2009.
Why Consider Alternatives to Bankruptcy?
Bankruptcy has significant and lasting impacts, including but not limited to:
- Restricted ability to borrow
- Limited employment opportunities
- Travel restrictions
Before filing for bankruptcy, consider alternatives that allow flexible debt management.
No Asset Procedure (NAP)
The NAP is designed for individuals with $1,000–$50,000 in debt and no significant assets. Through NAP, debts are discharged without full bankruptcy, offering relief for up to one year. Debtors must submit a Statement of Affairs to the Official Assignee, who will review the application and notify creditors. Note: NAPs remain on the Insolvency Register for 4 years.
Proposals and Compositions
These legal agreements let debtors negotiate repayment plans with creditors.
Proposal:
- Requires approval from 75% of creditors
- Binds all creditors to the agreed terms
- Allows debtors to avoid bankruptcy consequences
- Helps creditors recover more than they might through bankruptcy
Composition:
- Settles debts on terms other than full repayment
- Can lead to annulment of bankruptcy, reducing legal and financial burdens
Debt Repayment Order (DRO)
A DRO is suitable for debtors with less than $50,000 in unsecured debt who can make some repayments. It protects debtors from additional interest or penalties and allows them to maintain control over their assets while making structured payments.
Take Control of Your Financial Future
Insolvency is about more than numbers, it’s about people! Understanding your options empowers you to make informed decisions and regain financial stability. Book a consultation with Patel Nand Legal to explore whether bankruptcy or an alternative debt solution is right for you. Our experts provide tailored advice to achieve the best outcome for your circumstances.
Contact us: lawyers@patelnand.co.nz
