Debt and Credit

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.

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                Key Point: Bankruptcy usually lasts three years, counted from the day the Official Assignee receives your Statement of Affairs. You are then discharged automatically, but your name stays on the public Insolvency Register for four more years after that.
            

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

💡 The Statement of Affairs starts the clock

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.

⚠️ Bankruptcy is not a clean slate for every debt

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

💡 One vehicle, up to $6,500

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

                Important: Assets you acquire while you are bankrupt, not just what you owned at the start, can be claimed by the Official Assignee. If you inherit money or win a prize during your three years, you must tell the Official Assignee, and it can go to your creditors.
            

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

⚠️ These rules have teeth

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

💡 The NAP is not a free-for-all

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.

                Why an alternative often wins: A NAP lasts about a year rather than three, and a DRO lets you clear debt on terms you can actually afford. Both still show on the Insolvency Register and your credit file, but they carry fewer restrictions than bankruptcy and, for a NAP, a much shorter timeline. If you are weighing bankruptcy, it is always worth asking the Insolvency and Trustee Service whether one of these fits first.
            

💡 Before any formal insolvency, get free advice

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.

Hemi - Choosing a NAP over bankruptcy

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:

Personal loan: $9,500

Credit card A: $3,800

Credit card B: $3,100

Overdue power bill: $1,600

Total unsecured debt: $9,500 + $3,800 + $3,100 + $1,600 = $18,000

Does he qualify for a NAP?

Debt between $1,000 and $50,000: yes ($18,000)

No realisable assets: yes (his one car and basic goods are not realisable)

No means to make regular payments: yes

Has not used a NAP before: yes

Outcome: accepted into a NAP; the $18,000 is written off after about 12 months

💡 Why the NAP beat bankruptcy for Hemi

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.

David - Made bankrupt by a creditor

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:

Debt owed to the supplier: $42,000 (well above the $1,000 court threshold)

David files his Statement of Affairs within 10 working days

Three-year clock starts when the Official Assignee receives it

He is bankrupt until his automatic discharge three years later

An illustrative income contribution:

The Official Assignee's calculator leaves David reasonable living costs

Say it assesses a surplus contribution of $60 per week

Yearly: $60 × 52 = $3,120

Over three years: $3,120 × 3 = $9,360 toward his creditors

⚠️ Bankruptcy reshapes his working life

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.

Aroha - What she keeps and what is sold

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):

Work van worth $5,200: protected as a motor vehicle under the $6,500 limit

Cleaning equipment worth $1,800: necessary tools of trade, no maximum

Household furniture and appliances worth $3,500: necessary effects, no maximum

Savings: $1,300 of her $2,000 is protected

Loses (sold for creditors):

Savings above the cap: $2,000 - $1,300 = $700

Second car worth $3,000: only one vehicle is protected, so this is sold

Boat worth $6,000: a non-essential asset, sold

Available to creditors: $700 + $3,000 + $6,000 = $9,700 (before sale costs)

💡 The vehicle rule catches people out

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.

Mike - Life after discharge and rebuilding credit

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:

Year 0: adjudicated bankrupt, Statement of Affairs filed

Year 3: automatic discharge; register status changes to Discharged

Years 3 to 7: name remains on the Insolvency Register

Around year 7: the insolvency also drops off his credit file (about 4 years from discharge)

His rebuilding plan:

Request his free reports from Centrix, Equifax and Experian, and fix any errors

Pay every bill and account on time, because repayment history is a rolling 24 months

Avoid multiple credit applications in a short window

Steady, on-time behaviour gradually lifts his score as the insolvency ages out

                    Discharge is the turning point, not the finish line: Once discharged, Mike is free of the included debts and the restrictions, but the record lingers for a few years. Time plus consistent, on-time payments do the repair work. Checking his own files to track progress is free and does not harm his score.
                

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.

Related tools and guides

How to check your credit report for free
Debt payoff strategies
Debt consolidation loans
Debt management guide
The risk of payday lending
Bankruptcy in New Zealand, related background.

🎯 Test Your Knowledge

Complete this 10-question quiz to check what you have learned about bankruptcy in New Zealand

1. How long does bankruptcy usually last in New Zealand?

1 year

2 years

3 years, then automatic discharge

7 years

2. When does the three-year bankruptcy period start counting?

When the court hears the application

When the Official Assignee receives your Statement of Affairs

When your last debt was incurred

On 1 April each year

3. How much must a creditor be owed to apply to the High Court to make you bankrupt?

$100 or more

$500 or more

$1,000 or more

$10,000 or more

4. Which of these assets can you usually keep when you are bankrupt?

A rental property you own

A motor vehicle worth up to $6,500 and necessary tools of trade

All of your savings

A boat and a second car

5. How much cash or money in the bank is protected in bankruptcy?

Nothing

Up to $1,300

Up to $6,500

Up to $10,000

6. Which of these can you NOT do while you are bankrupt without permission?

Keep your everyday bank account

Travel overseas or run a business

Work as an employee

Keep your necessary household furniture

7. Above what amount must you tell a lender you are bankrupt when applying for credit?

$100

$500

$1,000

$5,000

8. Who can qualify for the No Asset Procedure (NAP)?

Anyone who owes more than $50,000

Someone owing $1,000 to $50,000 with no realisable assets and no way to repay

Anyone who has been bankrupt before

Only company directors

9. When is a Debt Repayment Order (DRO) the better fit?

When you owe more than $50,000

When you cannot pay anything at all

When you owe $50,000 or less and can afford to repay some of it over time

When you want to hide the debt from creditors

10. Which debts usually survive bankruptcy and are not wiped?

Credit card balances

Personal loans

Student loans, court fines, child support and maintenance

Overdue power and phone bills

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