Bankruptcy in New Zealand: What It Really Means
⚖️ What bankruptcy actually is
Bankruptcy is a legal process for people who cannot pay what they owe. In New Zealand it is run by the Official Assignee, part of the Insolvency and Trustee Service inside the Ministry of Business, Innovation and Employment. When you are made bankrupt, control of nearly everything you own passes to the Official Assignee, who can sell your assets to pay your creditors, and your unsecured debts are frozen so creditors deal with the Official Assignee instead of chasing you. In most cases you stay bankrupt for three years and are then discharged automatically, which wipes the debts that were included. That relief comes with real cost: your bankruptcy is published on the public Insolvency Register, it lands on your credit file, and while you are bankrupt you cannot run a business, be a company director or leave the country without permission. Bankruptcy is not the only option, and it is often not the best one. This guide explains exactly how it works, what you keep and what you lose, and the two lighter alternatives, the No Asset Procedure and the Debt Repayment Order, that may suit you far better.
The two ways you become bankrupt
There are only two routes into bankruptcy in New Zealand. You can apply yourself, or a creditor can apply to the court to have you made bankrupt.
| Route | Who starts it | The threshold |
|---|---|---|
| Debtor's application (voluntary) | You apply online to the Insolvency and Trustee Service, and the Official Assignee accepts it | You owe $1,000 or more in unsecured debt and cannot pay |
| Creditor's application (court) | Someone you owe money to applies to the High Court to have you adjudicated bankrupt | They are owed $1,000 or more and you have failed to pay |
Whichever route applies, you must complete a Statement of Affairs, a full list of your assets, debts, income and expenses. If a creditor makes you bankrupt through the court, you have to file it within 10 working days of the Notice to Bankrupt. Your three years does not start when the court order is made; it starts when the Official Assignee receives that Statement of Affairs. Delay filing it and you simply stay bankrupt longer.
What happens the moment you are bankrupt
Bankruptcy takes effect immediately. From that point:
- Your assets vest in the Official Assignee. Nearly everything you own legally passes to the Official Assignee, who can sell it to raise money for your creditors.
- Unsecured creditors stop chasing you. They can no longer take you to court or send debt collectors for the debts included in your bankruptcy. They lodge a claim with the Official Assignee instead.
- Some debts are not wiped. Court fines and reparation, child support and spousal maintenance, and most student loan balances survive your bankruptcy. Secured debts, such as a mortgage or a car loan over a specific vehicle, are tied to the asset.
- You may have to make income contributions. If you earn more than you reasonably need to live on, the Official Assignee can require weekly payments toward your creditors.
Many people assume bankruptcy erases everything. It does not. Student loans, court fines, reparation, child support and maintenance follow you out the other side, and if you took on a debt by fraud it can survive too. If most of what you owe is in these categories, bankruptcy may give you very little relief, so it is worth checking before you apply.
🏠 What you keep, what you lose, and the rules you live by
Being bankrupt is not the same as losing everything. The law lets you keep the basics you need to live and earn, and the Official Assignee cannot touch your day-to-day bank account. What you do lose is control of your larger assets, some of your surplus income, and a set of freedoms most people take for granted.
Assets you can keep
Certain property does not pass to the Official Assignee. These are the current protected amounts.
| Protected asset | Limit |
|---|---|
| Necessary tools of your trade | No maximum on a reasonable amount |
| Necessary household furniture and effects | No maximum on a reasonable amount |
| A motor vehicle | Up to $6,500 in value |
| Cash and money in the bank | Up to $1,300 |
The vehicle protection covers a single motor vehicle worth up to $6,500. A second car, a boat, a caravan or a jet ski is not protected and can be sold. If your one vehicle is worth more than $6,500, the Official Assignee can sell it, return $6,500 of the proceeds to you toward a cheaper replacement, and pay the rest to creditors.
Assets the Official Assignee can sell
Anything beyond the protected list can be realised for your creditors. That includes:
- A house or other real estate, if there is equity in it after the mortgage is paid
- Savings and investments above the $1,300 cash limit, including shares and managed funds
- A vehicle worth more than $6,500, and any additional vehicles
- Boats, caravans, valuable collections, jewellery beyond the reasonable everyday
- A tax refund owing to you, and money owed to you by others
- Property you gained during the bankruptcy, such as an inheritance or a lottery win
Income contributions
The Official Assignee does not take your wages, but if you earn more than you reasonably need to live, you can be told to make regular contributions toward your creditors. The amount is worked out using a standardised assessment of your income and reasonable living costs, so two people in the same income and family situation are treated consistently rather than by a fixed percentage. You keep enough for reasonable living costs; the surplus is what you contribute. If you refuse to pay an assessed contribution, the Official Assignee can take you back to court, and your discharge can be delayed.
The restrictions while you are bankrupt
Bankruptcy limits what you can legally do until you are discharged.
| Restriction | What it means |
|---|---|
| Running a business | You cannot be self-employed or take part in running or managing a business without the Official Assignee's written consent |
| Being a company director | An undischarged bankrupt cannot be a company director or take part in the management of a company under the Companies Act 1993 |
| Travelling overseas | You need the Official Assignee's permission to leave New Zealand, including for a holiday |
| Getting credit | You must tell the lender you are bankrupt if you apply for credit, borrow, or enter a hire purchase for more than $1,000 |
Breaking a bankruptcy restriction is an offence. Getting credit over $1,000 without telling the lender you are bankrupt, leaving the country without consent, or hiding an asset can all be prosecuted and can lead to the Official Assignee objecting to your discharge, which keeps you bankrupt longer.
The effect on your credit record
Bankruptcy is public. It is recorded on the Insolvency Register at insolvency.govt.nz, which anyone can search for free, and it is reported to the credit reporting agencies as an insolvency event on your credit file.
- The Insolvency Register: your entry shows as "Current" during the three years, then changes to "Discharged". Your name stays on the register for four years after discharge.
- Your credit file: Centrix, Equifax and Experian (formerly illion) each record the insolvency. A single insolvency is generally held on your credit file for around four years from the date you are discharged.
- Borrowing afterwards: even once it drops off, lenders may ask directly whether you have ever been bankrupt, and you must answer honestly.
🪜 The alternatives to bankruptcy
Bankruptcy is the heaviest of the formal insolvency options, and for many people it is not necessary. New Zealand has two lighter procedures, both run by the Official Assignee, that can clear or manage your debts with less damage. Which one fits depends on how much you owe and whether you can pay anything at all.
| Option | Debt level | Best when | Roughly how long |
|---|---|---|---|
| No Asset Procedure (NAP) | $1,000 to $50,000 unsecured | You have no realisable assets and no way to repay | About 12 months |
| Debt Repayment Order (DRO) | $50,000 or less unsecured | You can afford to repay some of it over time | Up to about 3 years |
| Bankruptcy | No upper limit | Debts are large or the other options do not fit | 3 years, plus 4 on the register |
The No Asset Procedure (NAP)
The NAP is a one-off way out for people who owe a modest amount and genuinely cannot pay any of it. If you are accepted, your listed debts are written off after about 12 months, without you paying anything and without going bankrupt.
To qualify for a NAP you must:
- Owe between $1,000 and $50,000 in unsecured debt
- Have no realisable assets, meaning nothing of value that could be sold to repay your creditors
- Have no way to make regular payments toward the debt
- Not have used the NAP before, as you can use it only once
Like bankruptcy, a NAP does not clear every debt. Court fines and reparation, child support and maintenance, most student loans, and secured debts still stand. The NAP is recorded on the public Insolvency Register, where your name stays for four years after the NAP is completed, and it appears on your credit file. It is a genuine reset, but it is not invisible.
The Debt Repayment Order (DRO)
A DRO suits someone who owes $50,000 or less and can pay something, just not the full amount on the creditors' terms. Rather than writing the debt off, it sets up a supervised repayment plan.
- The Official Assignee appoints a supervisor who works out an affordable weekly or fortnightly payment.
- The order usually runs for up to three years, and the payments are split among your creditors.
- Once the order is in place, creditors cannot chase the included debts or add further interest without approval.
- While the order runs, you cannot get credit of more than $1,000 without telling the credit provider about the order.
Formal insolvency is a big step. Free, confidential budgeting help through MoneyTalks on 0800 345 123, or a local financial mentor, can sometimes find a repayment or hardship arrangement that avoids a NAP or bankruptcy altogether. The Insolvency and Trustee Service itself can talk you through which option, if any, suits your situation.
🔢 Real-World Examples
Here is how these decisions play out for four New Zealanders in common situations. The figures are illustrative, but the rules and thresholds are the current ones.
Situation: Hemi owes $18,000 and has no way to pay it. He rents, drives an 11-year-old car worth about $4,000 that gets him to work, and has basic household goods and no real savings. After rent and living costs, there is nothing left over each week.
His debts:
Does he qualify for a NAP?
Bankruptcy would also have cleared the $18,000, but it would have run for three years with his name on the Insolvency Register for four more, plus the business and travel restrictions. The NAP clears the same debt in about a year, then sits on the register for four years after completion. Same relief, far less weight, because he had nothing to sell and could not pay anything.
Situation: David's building venture failed owing a supplier $42,000. He ignored the invoices and a court judgment, so the supplier applied to the High Court and David was adjudicated bankrupt. He now works as an employed builder earning $75,000.
How it unfolds:
An illustrative income contribution:
While bankrupt, David cannot be a company director or run his own building business without the Official Assignee's consent, cannot travel overseas without permission, and must tell any lender he is bankrupt if he seeks credit over $1,000. The exact contribution is set individually by the Official Assignee's standard calculator, not a fixed rate, so $60 a week here is only an illustration.
Situation: Aroha, a self-employed cleaner, is made bankrupt. She owns a work van, cleaning gear, household furniture, some savings, an old second car she rarely uses, and a small boat. Here is how the protected-asset rules apply to each.
Keeps (protected):
Loses (sold for creditors):
Aroha keeps her van because it is a single vehicle under $6,500 and doubles as her tools-of-trade transport. The second car is not protected no matter how little it is worth, because the exemption covers one vehicle only. To keep cleaning during her bankruptcy she also needs the Official Assignee's consent to remain self-employed.
Situation: Mike was made bankrupt, met his obligations, and is discharged automatically after three years. He wants to know when his record clears and how to rebuild.
His timeline:
His rebuilding plan:
Sources
Figures and processes in this guide were verified in July 2026 against: the Insolvency and Trustee Service (insolvency.govt.nz) on how bankruptcy works, the creditor and debtor application thresholds, the Statement of Affairs and three-year automatic discharge, protected assets (a motor vehicle up to $6,500, up to $1,300 in money, and necessary tools of trade and household effects), income contributions, the No Asset Procedure and the Debt Repayment Order; the Insolvency Act 2006 and the Companies Act 1993 (section 151, which disqualifies an undischarged bankrupt from being a company director) via legislation.govt.nz; Consumer Protection (consumerprotection.govt.nz); and Community Law on the restrictions while bankrupt, including the $1,000 credit-disclosure threshold. The $1,000 creditor and voluntary thresholds and the $50,000 NAP and DRO limits are current.
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