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.

Debit v’s Credit Cards

Well I have crawled out from under my not-so-cosy rock and am back into my blog, so you can expect honest, truthful and unorthodox blogposts going forward from me – apologies for the lack of contact!

I was watching TV the other day (a rare occasion with all of my dance practice lately), and an advert came on for sorted.co.nz. There was a woman going on about her credit card and how much interest she was charged “for using her own money in advance”. My initial thought was ‘durh’ are you kidding me, what, you think you get to use that cash for free? Moreover, the advert didn’t make a huge amount of sense as generally you are only charged interest if you haven’t repaid the card in full within your interest free period (usually between 30 – 45 days), and if the lady in the advert was using “her own money in advance” then she would have (in theory) be repaying the credit card in full each month and not being charged interest, obviously she wasn’t and there lies the problem.

Most of us will probably have a credit card, or at least know what one is, and most of us with them probably don’t pay it off every month like we are supposed to and quite possible push the boundaries with them by buying those shoes we didn’t really need, or that holiday that we just had to have now. This got me thinking. Now that there is Debit Visa cards like the ones Westpac have recently put out to the market; why do we, the average Joe Bloggs, need a Credit Card anymore? And are they just accidents waiting to happen for people without great financial discipline?

For those of you who need a brief explanation on the difference between Debit & Credit, here it is; a Credit Card is your standard Master Card, Visa American Express and is basically a line of credit you can draw on with the intention of paying it back at some point. You are charged quite a high interest rate (anywhere between 14%-22%) on the balance and if you “max out” your card there is a minimum payment that you generally have to make on the card per month; so really, it becomes like any other standard monthly expense you have if you max it out and can’t repay it. This minimum payment figure varies from 3%-5% of the balance – varies from lender to lender. So, for example if you have a $4,000 maxed limit and your lender has a 3% minimum payment, your monthly payment will be $120.

The Debit Card, although still a Visa card that allows you all the ‘good’ benefits of a standard credit card, enables you to use your own money already in your bank account; so this eliminates the need to repay the bank back as you are not using their money, you are using yours. So, there is no risk of maxing out a credit card and having yet another expense to pay at the end of the month.

I thought I’d go over some of the pros & cons of Debit Cards v’s Credit Cards:

Debit Card – Good Idea

Credit Card – Bad Idea, unless you can repay it each and every month without fail, hassle or most importantly, leaving you short of cash. Also, as far as obtaining mortgage finance goes; if you owe money on your credit card the bank will take into consideration the limit, not the amount you owe as to what they calculate to be your credit card expense. For example (same as above); If you have a $4,000 limit and you owe $1,000; the bank will take 3% (varies from lender to lender) of the $4,000 (limit); not 3% of the $1,000 (what you owe). So, My advice; either get rid of your credit card altogether, reduce your limit right down or repay your credit card every month.

I agree that Credit Cards are good for those “emergencies”, no argument from me there; if I had a friend in need and I needed to get to London or somewhere to see them then a credit card might come in handy. But then this is where a-whole-nother blog could be written on ‘Financial Planning’ as to what you should at least always have in savings; just briefly, an intro to a basic financial plan is that you should have at least three months of your expenses in a savings account for emergencies, such as, losing your job (quite a possibility in the world today) or emergency trip overseas for a friend/family member in need.

Comments are welcome....

Jod :-)

20% Deposit... Is this the end for the First Time Buyer??

Should the First Time Buyer (FTB) wait because they don’t have a 20% deposit? NOT AT ALL! Yes ANZ, National, ASB & Sovereign have limited lending to 80%, but this doesn’t mean the end or, a hell of a long wait, for first time buyer in New Zealand. In fact, this is quite possibly a blessing in disguise! There are always exceptions to the rules and these exceptions are what I am going to uncover in this post.

There are still a couple of ‘mainstream’ lenders out there (at the time of writing) that will lend 95%. The key to this is that they require the 5%, to be genuine savings, and they require the ‘deal’ to be fairly squeaky clean; i.e. clean credit history, stable employment etc.

With the 20% deposit issue, if you are in the situation where you had only saved 5% or 10% and you were thinking that you had to save for another year, or worse, longer; don’t worry, I have a few suggestions, but I challenge you to think outside the square. Why not look at the following options to secure your new property:

1. Borrow the shortfall from a further mortgage on mum & dads property that you pay for (yes this can be done and is of no cost to mum & dad)
2. Get a personal loan for the shortfall
3. Secure the new purchase against mum & dads property (again, no cost to mum & dad and no, this is not the same as option 1)
4. See if the vendor will look at leaving in the shortfall
5. Delayed unconditional or settlement day to allow you to save for the shortfall (this will give you the immediate motivation & deadline to save, save & save some more)

Some of these options will depend on serviceability, but they are options that shouldn’t be ruled out if you are really serious about buying a property. We don’t know how long these lenders are going to keep their LVR’s limited to 80%; it might be years or it might be months. If you were to look at option 2 for example and hypothetically the lenders put their LVR’s back to the standard 90-95%, you could possibly refinance the personal loan into the mortgage or of course, repay that personal loan. Either way, it’s a good option if you can comfortably service both the mortgage & personal loan.
If you are a buyer in the current climate, I actually envy you, as I personally am tied up for another year or so. The interest rates are now well and truly in the 6%’s, another couple of months might very well see them into the 5%’s – so on that, don’t go fixing in any longer than 6 months right now if you do decide to buy. For the first time in years, buying an investment property with a 20% deposit is generally coming out cashflow positive - before tax. If you are buying your first home as opposed to a rental – you might find that you could even be paying less with a mortgage, than what you are currently renting for, if you had a couple of flatmates assisting you with ‘border income’.
If you have any questions/comments about any of the information in this post, I’d love to hear them so feel free to comment away.
Furthermore, if you would like to discuss your own personal mortgage situation, please get in touch as I’d love to help!

Is it a good time to buy?

Well, a very interesting day yesterday - the Reserve Bank has slashed the Official Cash Rate (OCR) by 1% - fabulous news to home owners or people looking to enter the market as a couple of the leading banks have already reduced their fixed rates in light of the OCR drop; namely ANZ, ASB & Sovereign; the others will be sure to follow suit in due course.

So, the question that remains on prospective purchasers minds is.... Is it a good time to buy?

My first question to anyone who asks me this is - how long are you looking at holding this new property for? The answer to that is almost always "long term", and this generally means; 5 years plus in which case; what is going on right now in the current market will have been forgotten by then and potentially a good capital gain would have been made on the property purchased.

I want to have a look at the facts and also want to have a look at the speculation around this topic of whether or not buying now is a good idea:

FACT

• Rates have decreased quite significantly recently making money cheaper than it has been in a while
• Property prices have dropped
• Banks are tightening up criteria for higher lending deals i.e 90% plus – BUT, it’s NOT impossible – 100% deals are even still being approved.
  I strongly believe that if you are going down the 100% route; it is all in the way you structure your mortgage; 100% mortgages are absolutely fine if you buy an appropriate property and if you structure the mortgage in such a way that equity can be created in the shortest space of time.
• Buyers market is still very apparent.
  Meaning - first time buyers are not shoved out of the way like they would be in a booming market - they have time to make a comprehensive decision and act accordingly.

SPECULATION

• Property prices have bottomed out or have yet to bottom out
  Nobody really knows the answer to this question – are they going to continue on a downtrend or are they just going to stay stagnant for another 12-18 months?
• Banks will stop lending altogether for a period of 18 months
  I don’t believe this at all.
• Banks will call in existing mortgage debt
  I don’t agree with this at all.
• Interest rates will fall further
  Who knows, it seems to be looking like they will but have you got a crystal ball I can borrow because I dont' think anyone actually knows.

The Facts outweigh the speculation in that if property is something you want to get involved with, then it actually isn’t a bad time to be snapping up some bargains; but I must stress the importance of a long term hold.

What I am trying to get at with all this takes me back to my original question – how long are you in this for? If it is long term and let’s face it, property is usually and should be long term; then depending on the type of deposit that you have and your overall situation; you would structure the mortgage in a way that the risk of purchasing property in the current market is negated.

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.

New Zealand Property Investment Seminars in London a Huge Success!

My time in London is coming to an end with me flying back to Auckland on Thursday. I came to London on July 17th to carry out a series of four seminars. After the seminars were through we had to delay the flights home by 2 weeks due to the demand we had of people wanting to see me.

The seminars have been hugely successful and we have managed to help over 200 people of which 95% are kiwi ex-pats, who are looking to invest back home.