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.

What to do when things go bad!

The last six months have been the worst of my life in a financial sense. I have lived through the terrifying prospect of filing bankrupt and even when I accepted the fact that I might have to file bankruptcy, it didn’t have the effect on me that you would think it would. I was relatively calm about the ordeal as it just seemed too far out of my hands. One thing that I did have a realisation on was that bankruptcy, although wasn’t going to be a fun thing to go through, really wasn’t the end of the world. It was to be a step back, but it wasn’t going to kill me so I just needed to get on with life and that is precisely what I did. In the end I didn’t go bankrupt and a few months on I am starting to recover financially; I personally faced the worst case financial scenario, and I recovered. Nothing much scares me now.

The financial issues I faced was due to loss of daily income from my employer who quite simply didn’t pay me throughout the whole time I was employed by them (approximately 4-5 months); I continually gave them the benefit of the doubt and brought into the excuses they continued to make and as it turned out, it bit me severely in the arse! In the meantime I had mortgages, personal loans, car loans, rent and food to pay for and with NO income, this was rather difficult as you can imagine. Also emotionally I was a wreck and pretty highly strung due to the constant phone calls from creditors. All I really wanted to do was bury my head in the sand and not look up until the coast was well and truly clear.

The coast wasn’t going to clear on its own, so from my experience if you are in a financially tight or unstable position, step up and TALK TO YOUR CREDITORS, they want to help you, they need to know what is going on, they are actually bound by the Credit Contracts Act to consider helping you if they can. The person on the other end of the phone is human too. Just explain your situation, advise you are not abandoning your debt but you need some help. Don’t be afraid to ask for help, people generally are willing to help if asked.

So in summary – I have two offerings of advice if you find your financial situation is getting out of control:

1. If you choose bankruptcy – it won’t kill you. Don’t panic, just go through the steps and get on with life. Of course research this; It is not necessarily the easy way out by any means!
2. Talk to your creditors – they must be kept in the know.

Credit Companies, School System or Individuals - who is to blame for credit debt?

There was a documentary on New Zealand's 60 minutes last night about a girl who had racked up $70,000 in credit debt on a $35,000 salary. While driving to work this morning listening to the radio, the presenters were taking calls on this topic and specifically referring to this documentary, and discussing how easy it is to obtain credit in this country, and the problem we face with ‘Generation Y’, that is fast becoming ‘Generation Debt’!

My question is – whose fault is this?

The credit companies for practically giving away credit and just making it too tempting, with 24 month interest free deals & 12 month deferred payments?

The school system for not educating kids on how to save and spend their money?

The parents of the Individual racking up the debt?

Or

The individual who racks up the debt?

I want to explore each a little....

Credit Companies
Why the HELL should the credit companies be at fault? Isn’t it their business intention to lure people in and sign them up on these deals so they can grow their business books? So in that case; my hats off to them, as they are obviously doing a good job! It is not their problem that people over extend themselves! However in saying this, I do agree (albeit after a bit of a debate); that the credit companies could have a bit more of a tighter criteria on who they lend to and how much they lend - perhaps a more stringent way of working out borrowing capacity.

School System
God knows I didn’t last at school myself and happily bailed out at the end of 6th form; but I honestly think a little bit of the responsibility does lie within the schools. In my opinion, perhaps a little less on the pointless poems & algebra, and a little more on budgeting, banking, realistic expected salaries and actual case studies on general living & expenditure, wouldn’t go astray!

The Parents
Ok, some of the responsibility lies here also of course. Are parents teaching their kids about money? Who knows, but surely NZ kids are learning the value of a dollar – it’s not rocket science after all.

The Individual
I was shocked while listening to the radio, that everyone ringing in and also the presenters, were blaming everyone (mainly the credit companies) but themselves. Is it just me or does that seem ridiculous!? Aren’t we all adults? Do people not understand that if you tick something up – you eventually have to pay for it?

So, in my opinion, whilst there is a little bit of blame on the school system & perhaps the parents; if you as the individual have excessive credit debt – isn’t this nobody’s fault but your own? The credit companies are just doing what they do best – lending money – it is not, I repeat, NOT their fault your credit debt has got out of hand.

I am not saying I’m perfect, I have credit debt myself – but I only have myself to blame for that.