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For individuals & families: Facing financial difficulty and debt

Bankruptcy

What is bankruptcy?

Bankruptcy is a legal proceeding where people who cannot pay their bills can get a fresh financial start. The right to file for bankruptcy is provided by law and normally lasts three years. However in some cases this may be extended. Filing for bankruptcy immediately stops your creditors from seeking to collect debts from you.

Visit the Insolvency and Trustee Service website for more information on bankruptcy.

No Asset Procedure (NAP)

If you find yourself insolvent (unable to pay your debts as they fall due) the NAP may offer you an alterative to bankruptcy. The NAP is designed for people who have accumulated consumer debt and find their financial affairs have become unmanageable.

Visit the Insolvency and Trustee Service website for more information on the NAP.

Applying for bankruptcy or a No Asset Procedure (NAP)

You can apply for bankruptcy or a NAP online at the Insolvency and Trustee Service website or complete a manual application form.

Visit the Insolvency and Trustee Service website for more information on how to apply.

Summary Instalment Order (SIO)

An SIO is a formal arrangement between a debtor and their creditors that allows the debtor to pay back all, or an agreed part, of their debts by instalments. An SIO usually lasts for three years, but where there are special circumstances, it may last for five years.

Where a person has assets or income an SIO may be considered as an alternative to bankruptcy. SIOs provide an opportunity to learn to live on a budget and to manage finances. These skills may prevent difficult financial positions in the future.

Visit the Insolvency and Trustee Service website for more information on SIOs.

Your tax obligations

Responsibility for your tax bill

With the exception of child support, all money owed to Inland Revenue at the date of bankruptcy, including student loan amounts, will form part of our claim. We will write off any amount that cannot be recovered due to bankruptcy.

Paying child support

A liable person who becomes bankrupt still has to pay their existing child support debt, along with any future child support liability.

Your IRD number

You will have a new IRD number from the date of your bankruptcy. This is so we can keep your pre and post-bankruptcy tax account details separate. You do not need to apply for your new IRD number, we will do this for you.

You will need to give your new IRD number to all parties who currently hold your pre-bankruptcy IRD number, for example, employers, banks, and Work and Income (including its StudyLink service for subsequent student loans drawn).

Your tax refunds

The Official Assignee will receive any tax refunds owing to you during the term of the bankruptcy. Once you are discharged from bankruptcy any tax refunds will go to you (unless you have other post-bankruptcy tax debts).

Working for Families Tax Credits

If you are entitled to Working for Families Tax Credits, you will continue to receive your entitlement under your new IRD number.

Filing tax returns

A person who is bankrupt is required to file all returns due, up to the date of bankruptcy. They must file:

  • one return under the original IRD number from 1 April to the date of bankruptcy showing all income and claiming any expenses they may be entitled to for this period . If they don't have a standard balance date this will be from the start of their income year to date of bankruptcy, and
  • another return under the new IRD number showing all income and claiming any expenses they may be entitled to for the full year. If they don’t have a standard balance date this will be from the start of their income year to the end of their income year.

We’ll do a "special assessment" for the post bankruptcy return taking into account that some of the income and expenses may relate to the pre bankruptcy period return.

Child support assessments

All liable persons who are declared bankrupt during the previous financial year are assessed under the normal assessment rules.

Find out more

For more tax information please call us on 0800 377 774. 

 


Date published: 08 Sep 2011

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