Article - Bankruptcy – the last resort

Bankruptcy – the last resort
by Rebekah Webby

Every year, hundreds of New Zealanders are declared bankrupt. Over 3000 new bankruptcies were filed in New Zealand in the last 12 months, 142 of them in Tauranga.

Some people see bankruptcy as an easy and effective way to solve a problem of insurmountable debt and insolvency, without serious consequences.
In truth, however, there are significant implications at both personal and professional levels that flow from declaring bankruptcy, including a number of restrictions and obligations that can dramatically affect a persons way of life.

So, before you proceed with declaring yourself bankrupt, here are some practical considerations to think about.

There are two ways to be declared bankrupt.
• You can file a petition with the High Court to be made bankrupt and pay the minimal filing fee. As soon as the petition is filed, you are deemed to be bankrupt.
• A creditor (a person you owe money to) can apply to the High Court to have you adjudicated bankrupt by the Court. This will take place after a court hearing determines that you are unable to pay your debts.

After being deemed bankrupt, an Official Assignee is appointed to fairly and independently administer your affairs regarding the bankruptcy.
The Official Assignee can investigate your financial affairs and follow up on matters likely to result in the recovery of funds. Nearly all property you own is automatically placed with the Official Assignee, who will take action to sell assets and distribute the proceeds among your creditors.

During bankruptcy, you continue to manage your own bank account and income and continue to be liable for all debts incurred from the date of bankruptcy, along with any debts not covered by the bankruptcy, such as child support, reparation or fines.

However, once you are declared bankrupt, there are certain things you will not be able to do:
• become a director of a company
• take part in the management or control of a business without the consent of the Official Assignee
• be employed by a relative or a company or trust that is managed or controlled by a relative without the consent of the Official Assignee
• leave the country without the consent of the Official Assignee
• obtain credit over $100 without disclosing that you are an undischarged bankrupt.

While these restrictions usually last for three years, in serious cases this period may be extended by the Court. Once discharged from bankruptcy, the bankrupt is released from all the debts that were covered by the bankruptcy.

But, there are other restrictions placed on a discharged bankrupt that will affect them for the rest of their lives.

Bankrupts cannot hold certain public offices such as Member of Parliament, councillor, community magistrate; or practice in certain professions, such as solicitor or accountant.

Bankrupts will also find their credit rating seriously affected, and may face difficulties with obtaining visas for medium to long-term stays in certain countries.

Clearly, bankruptcy should only be considered in the most extreme circumstances. Being bankrupt is not a criminal offence, but it will inevitably affect the amount of control you, as a bankrupt, can have over your own affairs. It should never be undertaken lightly.

So, if you are facing increasing debt and are seriously considering declaring yourself bankrupt, seek professional assistance, first from your accountant. They will identify potential risk areas and help you address any problems as they arise.

It is vital that someone in financial difficulty does not simply sweep their debts under the carpet, or think that bankruptcy offers an easy solution to their problem.

Only after you have exhausted all other avenues should you consider speaking with your lawyer about declaring bankruptcy. Keep in mind the consequences of such an action, and relinquishing a significant amount of control over your life.

Consider bankruptcy only as a last resort.