Bankruptcy in New Zealand: What It Really Means
Bankruptcy is the formal way of dealing with debt you cannot repay, and in New Zealand it usually lasts three years from the date the Insolvency and Trustee Service receives your Statement of Affairs. It is administered by the Official Assignee under the Insolvency Act 2006. At the end of it, the debts included are cleared and you start again.
It also carries real restrictions while it runs, and those are what people underestimate. You need the Official Assignee's approval to be self employed, to manage a business, or to work for a relative. You need approval to travel overseas. Your assets, beyond a defined set of things you keep, are under the Official Assignee's control and may be sold. If you earn more than you need to live on, you may be required to make regular payments from that surplus.
Bankruptcy in one box
Usually three years. Available where you owe more than $1,000 in unsecured debt, and it is the only formal option once debts pass $50,000. You keep a vehicle worth under $6,500, up to $1,300 in savings, basic household furniture and the tools you need for work. Your details stay on the public register for four years after discharge.
Bankruptcy clears your student loan. A No Asset Procedure does not. That is the opposite of what most people assume, because a NAP sounds like the gentler option and in most respects it is. If a student loan is a large share of what you owe, this single difference can be the most important fact on the page.
How you become bankrupt
There are two routes. You can apply yourself, which is the usual course for someone who has concluded there is no way through. Or a creditor can apply to the court to have you made bankrupt, which is where the $1,000 threshold matters: a creditor needs more than $1,000 of unsecured debt to take that step.
Above $50,000 of debt, bankruptcy is the only formal insolvency option available. Below that, a No Asset Procedure or a Debt Repayment Order may fit better, and both are less restrictive. Working out which of the three applies to you is the first piece of work, and it turns almost entirely on how much you owe and whether you can pay anything at all.
What the three years are actually like
The Official Assignee takes control of your assets and deals with your creditors, so the constant contact from collectors stops. That relief is real and it is the reason many people describe bankruptcy as a weight lifting. Against it sits a set of controls on ordinary decisions: running a business, travelling, and taking on credit all involve the Official Assignee rather than being yours alone. For three years, and on the public register for four years after that.
What you keep, and what goes
Bankruptcy does not strip you of everything. The Insolvency and Trustee Service sets out what stays yours, and the list is deliberately practical: it is meant to leave you able to live and to work.
| You keep | The Official Assignee may take |
|---|---|
| A vehicle worth under $6,500 | A vehicle worth more than that |
| Up to $1,300 in savings | Savings above $1,300 |
| Basic household furniture and effects | Property, and any equity in it |
| The tools you need for your work | Other assets of value |
Your house is treated as an asset, and any equity in it may be realised to pay creditors. That is the single biggest practical difference between bankruptcy and a No Asset Procedure, because owning a house with equity generally rules a NAP out anyway: the whole basis of a NAP is that there is nothing to recover.
The Official Assignee looks at what you earn and assesses whether you are in a position to make regular repayments. Bankruptcy is not only about what you own on the day. If your income rises during the three years, contributions can be required from the surplus above what you need to live on.
The restrictions, in plain terms
Business and self employment. You need the Official Assignee's approval to be self employed, to manage a business, or to work for a relative.
Overseas travel. Approval is needed to travel overseas, and you need to get it before making travel plans rather than after booking.
Credit. Borrowing while bankrupt is restricted and must be disclosed. Assume that any credit application involves telling the lender you are bankrupt.
The self employment restriction is the one that most often decides whether bankruptcy is workable for someone. A tradesperson or a contractor is not shut out, but they are dependent on approval rather than free to trade, and that is a materially different position to be in for three years. It is worth raising specifically before you apply if it describes how you earn.
Which debts survive bankruptcy
Most debts included in your bankruptcy are cleared at discharge. These are not:
- Court fines and reparation. Fines and reparation ordered by a court continue.
- Child support and maintenance. Both continue.
- Debts incurred through fraud. Not cleared.
Notice what is absent from that list. Student loans are cleared by bankruptcy, which is not the case with a No Asset Procedure. Inland Revenue submits a proof of debt for the loan balance up to the bankruptcy date, and it is dealt with alongside the other debts. Amounts drawn down after the bankruptcy date are different: they are not included, and are treated as a debt to the Crown to be recovered separately.
The three options, side by side
This is the comparison worth making before anything else, because the options are not ranked from mild to severe. They answer different situations, and one of them clears a debt the others leave behind.
| Debt Repayment Order | No Asset Procedure | Bankruptcy | |
|---|---|---|---|
| Debt level | Under $50,000 unsecured | $1,000 to $50,000 | Over $1,000, and the only option above $50,000 |
| Length | Set by the order | Usually one year | Usually three years |
| You must | Be able to repay something | Have no assets and no ability to repay | Meet the insolvency test |
| Student loan | Not written off | Not written off | Written off |
| Repeatable | Yes | Once only | Rules out a later NAP |
Having been bankrupt disqualifies you from ever using a No Asset Procedure. So does having completed a NAP. Both are effectively once in a lifetime, and using one closes the other. That is a strong reason to take free advice before choosing, rather than after.
What discharge actually does
At the end of the three years your status on the public Insolvency Register changes automatically from current to discharged, and the debts included are cleared. Your details remain on the register for four years after discharge, so the record outlasts the bankruptcy itself by some margin. Credit reporting runs on its own timeframe as well, and lenders will ask about bankruptcy on applications for years afterwards.
Discharge is not automatic in every case: it can be opposed or deferred where there are concerns about conduct or cooperation. Meeting your obligations during the three years, including telling the Official Assignee about changes in your circumstances, is what makes the ordinary path the one you get.
Tax, and the year you are adjudicated
The tax year in which you become bankrupt is split. Inland Revenue requires two part year income tax assessments: one from 1 April to your adjudication date, and a second from the day after adjudication to the end of the tax year. Each shows the income and expenses for its own period. It is an administrative point rather than an extra cost, but it catches people who file as though it were an ordinary year.
Four situations
Hemi owes $62,000: $40,000 of student loan and $22,000 of consumer debt. He has no assets and cannot pay.
Where he stands: above $50,000, so bankruptcy is the only formal option regardless. It also happens to be the one that helps most, because bankruptcy clears the student loan while a NAP would have left all $40,000 of it. The route he has no choice about is also the better outcome here.
Anahera owes $70,000 from a business that failed and earns her living as a self employed contractor.
What to raise first: the self employment restriction. She needs the Official Assignee's approval to continue working for herself, and that is a conversation to have before applying rather than after. Her debt level means bankruptcy is the formal option, so the question is how to make her work arrangement fit within it.
Wiremu owes $55,000. He has a car worth about $9,000 and $2,000 in a savings account.
What happens: both are above the thresholds. He keeps a vehicle worth under $6,500 and up to $1,300 in savings, so the car may be sold and replaced with something cheaper, and $700 of the savings is above the limit. His work tools and basic household furniture stay with him.
Grace owes $34,000, has no assets and no ability to repay. A NAP would fit. She is considering bankruptcy instead because she has heard it is more thorough.
Why that would cost her: bankruptcy runs three years against a NAP's one, brings restrictions on business and travel that a NAP does not, and stays on the public register for four years after discharge. Unless a student loan is a large part of her $34,000, the NAP is the lighter route to the same place, and choosing bankruptcy permanently rules the NAP out for the future.
Before you apply
Sources
Checked against the official sources on 10 August 2026:
- Insolvency and Trustee Service, How bankruptcy works: the three year period, the $1,000 threshold, the $6,500 vehicle and $1,300 savings limits, the business and travel restrictions, the debts not cleared, and the four years on the register after discharge.
- Insolvency and Trustee Service, Personal debt: the three formal options and the debt levels each applies to.
- Work and Income, Student Loan and bankruptcy: that Inland Revenue submits a proof of debt for the loan balance to the bankruptcy date, and that amounts drawn down afterwards are treated as a Crown debt instead.
- Inland Revenue, How personal insolvency and bankruptcy affects your tax: the two part year assessments in the year of adjudication.
This guide is general information, not legal or financial advice. Bankruptcy has consequences that reach into how you work and travel for three years and onto a public register for four years after that. A free financial mentor or MoneyTalks can help you choose between the options, and a lawyer can advise on anything involving court fines, reparation or a creditor's application to make you bankrupt.
Related guides and tools
- The No Asset Procedure: the one year option for debts under $50,000.
- When Old Debt Expires: when a creditor simply runs out of time.
- Debt Collection: your rights when a collector makes contact.
- Budget Calculator: working out whether there is any surplus income.
- Bankruptcy in New Zealand Explained, related background.
🎯 Test Your Knowledge
Complete this 10-question quiz to assess your understanding of bankruptcy in New Zealand
If you've found a bug, or would like to contact us, or learn more about James Graham and Calculate.co.nz.
Calculate.co.nz is partnered with Interest.co.nz for New Zealand's highest quality calculators and financial analysis.
Calculate.co.nz is the sister site of CalculatorHub.com, the world's largest calculator website by tool count.
All calculators and tools are provided for educational and indicative purposes only and do not constitute financial advice.
Calculate.co.nz is proudly part of the Realtor.co.nz group, New Zealand's leading property transaction literacy platform, helping Kiwis understand the home buying and selling process from start to finish. Whether you're a first home buyer navigating your first property purchase, an investor evaluating your next acquisition, or a homeowner planning to sell, Realtor.co.nz provides clear, independent, and trustworthy guidance on every step of the New Zealand property transaction journey.
Calculate.co.nz is also partnered with Health Based Building and Premium Homes to promote informed choices that lead to better long-term outcomes for Kiwi households.
Calculate.co.nz is hosted in Auckland by SiteHost New Zealand.
All content on this website, including calculators, tools, source code, and design, is protected under the Copyright Act 1994 (New Zealand). No part of this site may be reproduced, copied, distributed, stored, or used in any form without prior written permission from the owner.
About & trust: Why Calculate is NZ's most comprehensive · By the Numbers · How we compare · Editorial standards · How we keep data current · NZ finance glossary · Research & data · Financial literacy NZ · About · Privacy policy · Terms of use
Reviewed and maintained. Last reviewed 2026-08-10 and checked on a twice-monthly cycle against IRD, RBNZ and Stats NZ. How we keep data current.
© 2026 Calculate.co.nz. All rights reserved. Building free NZ calculators since 2011.