Statement of Feasible Options to Achieve the Desired Objectives
Non-regulatory options for achieving the objectives such as, NZITS taking on an increased educative role was recommended in the "Role of the State" Cabinet paper. That paper noted that greater promulgation to creditors and debtors could be funded from current baselines.
The problems with the current regime arise from the current regulatory framework. Therefore improvements to the current regime therefore require regulatory solutions. The recommended changes are as follows:
Status Quo: Increase Use of Existing Alternatives to Bankruptcy
Issues relating to consumer overindebtedness were examined in tier one of the insolvency review. It was revealed that formal alternatives to bankruptcy were rarely used. Individuals file debtor petitions for bankruptcy because they did not know alternatives were available and did not thoroughly investigate their options when in financial difficulty. Under the current regime, adjudication of bankruptcy occurs once the debtor files a debtor's petition at the District Court.
Current alternatives to bankruptcy include:
- Summary instalment orders (SIOs) which is a payment scheme for unsecured debt that does not require creditor approval.; and
- Part XV Proposals which is a payment scheme for all debt, secured and unsecured, that requires the approval of the majority of creditors.
These schemes are governed by Part XVI and XV of the Insolvency Act 1967 respectively. They are currently administered by the courts. In order to enable better access to these schemes, Cabinet has already agreed to transfer the responsibility of receiving debtor petitions and summary instalment orders from the courts to the Official Assignee ("OA"). It was envisaged that this would provide insolvent individuals with better information about formal alternatives to bankruptcy prior to adjudication.
Development of a "No Asset Procedure"
There are a group of insolvent individuals for whom the formal alternatives to bankruptcy are not available because their circumstances are such that, they could not afford to repay the debt as well as maintain an acceptable standard of living. The no asset procedure is designed to address this problem.
The no asset procedure is a scheme that provides an alternative to bankruptcy for insolvent individuals with nominal debts, no assets and who have no means to repay the debt.
Prescribed entry criteria ensures that only those who meet the above description can enter and resolves that individual's financial failure by notifying all of their creditors of the debtor's inability to repay the debt. It then gives creditors an opportunity to object to the debtor's entry. Where there are no successful creditor objections, the debtor is given a fresh start after a 12 month period by making the debts unenforceable against the debtor (N.B. the debts will effectively be "written-off").
Student loans will be non-dischargeable under the no asset procedure and debtors will be entitled to receive a student loan.
Amendments to the Insolvency Act 1967
It is proposed that the current Insolvency Act is repealed and replaced in order to clarify current provisions, make the law consistent with The Bill of Rights Act and the Privacy Act and modernise administrative provisions, particularly those relating to the way the OA must deal with bankrupt estates.
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