Has your money been disappearing down the gurgler? It is often easy to get into debt, but not so easy to get out of it.
Debt can be simply understood as an amount owed by the borrower to the creditor for a specific purpose. Debt can take various forms, including car finance, after-pay schemes, home loans/mortgages, or business loans, to name a few.
So, how do you dig your way out of debt? Many of us are guilty of swiping our credit cards without thinking twice, however, it is important to get on top of debt before it spirals out of control:
If a debt becomes overdue and unpaid, the lender is entitled to take steps to recover it. Debt recovery may be carried out by the lender/creditor themselves, or they may pass on or sell the debt to a debt collection agency, who then legally becomes the “creditor”.
Failure to repay debts when they are due, and lack of sufficient cash flow, can result in insolvency. Insolvency is a last resort option that allows a borrower to clear their debt, but with implications of course.
Insolvency options differ depending on whether you are an individual or a company:
There are different personal insolvency options depending on your situation. Bankruptcy is a legal process for individuals who owe more than $50,000 that they are unable to repay. The bankruptcy process involves an individual being declared bankrupt by the court, with their assets sold to repay creditors.
Other options include Debt Repayment Orders (used if the borrower owes less than $50,000 in unsecured debt but can repay some of it) and the No Asset Procedure (the best option if you owe less than $50,000, have no assets, and have no extra money to make repayments on your debt).
Alternative options should be explored before conducting a formal insolvency procedure due to the long-term implications that insolvency can have (for example on credit ratings, or on services offered by utility providers and banks).
Voluntary administration is when an administrator is appointed to review and rearrange a company to avoid liquidation. The administrator must be a licensed insolvency practitioner.
Receivership happens when one (or more) of the company’s secured creditors appoint a receiver to deal with the secured assets. If a company goes into receivership, once it has paid its debts to the secured creditors, it may continue to operate.
Liquidation is a process for companies that are unable to pay their debts. A liquidator is appointed to investigate and deal with all the business assets. The creditors can apply to the High Court for this to happen (Creditor Liquidation), or the shareholders can pass a special resolution (Voluntary Liquidation). The liquidator is usually a chartered accountant or an insolvency expert.
When it comes to avoiding insolvency, prevention is critical. However, if you do notice your debt piling up, be assured that both debtors and creditors have rights and obligations under our debt recovery laws. The aim of New Zealand insolvency law is to provide a fair and orderly process for recovering debt, resolving insolvency issues, and ensuring that both debtors and creditors are treated fairly.
Wakefields Lawyers is here to assist you in navigating the debt recovery process and the options that may be available. Seeking legal advice early in the debt recovery process can often help to prevent the situation from escalating to insolvency. By taking early action, our insolvency experts may be able to help you negotiate a repayment plan or settlement with your creditors. These options can help to avoid the need for more drastic measures such as liquidation or bankruptcy.
If you are concerned that you personally, or your company is close to entering insolvency and want to reduce stress and uncertainty, get in touch with our team at Wakefields Lawyers. We have the expertise and experience to assist you in protecting your legal rights. For further information, contact Wakefields Lawyers today on (04) 970 3600 or email firstname.lastname@example.org.
– Kailey Northcott (Solicitor)