Statement of the Net Benefits of the Proposal, Including the Total Regulatory Costs and Benefits of the Proposal, and Other Feasible Options
Currently the costs of putting an individual through bankruptcy is twofold. There are administration costs to the state and socio-psychological costs to the individual.
At present administration costs of bankruptcy are kept to a minimum by using the non-complex "back-office" process. This is where bankrupts with no assets, liabilities of less than $100,000 and which are non business related are administered within three to six months of adjudication and the file is closed. The file is kept by the OA and bankruptcy restrictions remain for the duration of the three year term
Costs of administering the no asset procedure will remain the same as the current bankruptcy regime however, NZITS systems will become more efficient because they will be able to discharge their responsibility of administering these insolvents within one year rather than three.
The socio-psychological costs and the financial stigma of being bankrupt remains for up to seven years (e.g. private credit agencies are able to hold information on bankrupts for up to seven years and the NZITS searchable database lists bankrupts (discharged and undischarged) indefinitely). Limiting the restrictions imposed on the debtor, discharging their debts sooner and giving them access to student loans will enable no asset procedure debtors to recover from financial failure more swiftly than those in bankruptcy.
The benefit of repealing and replacing the current Insolvency Act is that it will clarify the law for debtors, creditors and the OA. It will also allow the OA to operate in a more administratively efficient manner.
There are no direct business compliance costs associated with introducing a no asset procedure or repealing and replacing the Insolvency Act 1967. Minimal filing fees to enter the no asset procedure will be comparable to the fees schedule under the current bankruptcy regime. Fees will not be a barrier to enter the no asset procedure. In cases of extreme hardship, they may be waived.
Creditors who object to a debtor entering the procedure may incur compliance costs. Those costs will involve taking the time to file an objection with the OA within the 30 day time limit. This, however, is an optional course of action and we anticipate that this will not happen in the majority of cases as creditors will incur greater costs pursuing such an appeal rather than writing the debt off.
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