Bankruptcy v's No Asset Procedure (NAP)

I thought after my last blog I would explain a bit further on the specific details of the options available to you if you find you are in a position where your debts are out of control. After all, nothing in life is that big of a deal that you can’t get out of, it’s just knowing how to deal with difficult situations when they arise. As my mother always told me, “being overwhelmed is all in your head so just get on with it!”

Bankruptcy

Bankruptcy is a way of dealing with debts you have no means of repaying. A clean slate.

There are two ways to become bankrupt:

1. The individual applying for bankruptcy, a No Asset Procedure or a Summary Instalment Order now applies for these options online via the Insolvency and Trustee Service website or by sending a completed statement of Affairs and application form directly to the Insolvency ad Trustee Service.

2. A creditor can apply to the High Court to have a debtor adjudicated bankrupt.

Becoming bankrupt is a serious decision and it should only be viewed as a last resort. It is recommended that anyone considering making themselves bankrupt should get professional advice on how bankruptcy might affect them.

Information above collated from Ministry Of Economic Development - http://www.med.govt.nz

The bits I found really daunting about bankruptcy was the fact that you needed permission by someone I a likened to a parole officer (actually called an Official Assignee) if you were leaving NZ at all, even for a holiday. Failure to do this can result in fines or being chucked in prison or both – so, it’s recommended that you really do not screw with the system and you follow their rules. Of course there are a bunch of other rules around bankruptcy you can find here but I thought the holiday one was pretty severe as bankruptcy can last up to 7 years.

No Asset Procedure

A debtor who is unable to pay their debts may have an alternative to bankruptcy through the No Asset Procedure (NAP). Unlike bankruptcy, the NAP lasts one (1) year. Creditors cannot pursue you for debts included in the NAP.

1. To qualify you must:
2. have no realisable assets (realisable assets exclude cash up to $NZ1,000, a motor vehicle up to $NZ5,000, tools of trade, and personal and household effects)
3. not previously been admitted to the no asset procedure
4. not previously been adjudicated bankrupt
5. have total debts (excluding student loan) not less than $NZ1,000 and not more than $NZ40,000. (Please note that your debt level when applying for entry to the No Asset Procedure will be calculated including all unsecured and secured debt)
6. complete a means test showing you have no means of repaying any amount towards your debts.

The Official Assignee can refuse entry into the NAP if:

1. your creditor(s) object to entry or
2. bankruptcy proceedings have been initiated and the likely outcome for the creditor would be materially better if the proceeding continued or
3. you have concealed assets or
4. you have committed an act that would be an offence under the Insolvency Act 2006 were you bankrupt or
5. you have incurred debts knowing you had no means to pay them.

Information collated from - Bankruptcy & No Asset Procedure

In summary – if you own property or have debt in excess of $40,000 bankruptcy might be an option for you (lasts 5-7 years). If you do not own property and your debt is less than $40,000 NAP might be an option for you (lasts just 1 year).

For goodness sake though, do not enter these decisions lightly, do your own research, get professional advice and try all other avenues before taking one of the above steps.