How to recover debt from a bankrupt
If a person who owes you money (a debtor) is adjudicated bankrupt under the INSOLVENCY ACT 1967 (see How to undergo bankruptcy ), you will need to work in conjunction with the Official Assignee to attempt to recover the money owed. It is the Official Assignee's role to sell the assets of the bankrupt estate and distribute the proceeds to the bankrupt's creditors.
Lodging your Proof of Debt form
If the bankrupt identifies you as a creditor, you will be notified of the bankruptcy and be sent a report outlining the bankrupt's financial position. (Bankruptcies are also advertised in local newspapers and in the New Zealand Gazette.) If payments are likely to be paid to creditors, a Proof of Debt form will be included with the report for you to complete.
It is in your best interests to complete the form correctly and include documents supporting your claim as soon as possible to avoid any later delays. This is because once the debtor is adjudicated as bankrupt the standard procedures available for recovering debt are prohibited (see How to recover a debt from a company and How to recover a debt from an individual).
If you do not receive the Proof of Debt form you should make the appropriate enquiries with the Insolvency and Trustee Service, which is part of the new Ministry of Economic Development.
What can I claim for?
The Insolvency and Trustee Service will also advise you as to what you may claim for. You may be unable to recover:
- debts incurred after the date of the bankruptcy
- interest accrued after the date of bankruptcy
- legal costs of debt recovery (unless this was provided for in your contract with the debtor)
What rights do I have as a creditor?
You as a creditor have certain rights that you are able to enforce, especially if you are concerned about your position. These are:
- the right to inspect certain documents relating to the bankruptcy (such as other Proof of Debt forms, the bankrupt's books of account and the minutes of any creditors' meetings)
- request a creditors' meeting
- inspect the Official Assignee's trust account for the bankrupt estate of which you are a creditor
In what order are the proceeds of the estate distributed?
Once the bankrupt's estate has been sold, there is an order of priority that the Official Assignee must follow when distributing the funds:
- the Official Assignee's fees and administration costs
- costs and expenses incurred by the creditor who petitioned the High Court for the adjudication of bankruptcy
- wages owing to the bankrupt's employees for the period up to four months immediately before the date of bankruptcy, and holiday pay (but there is a maximum pay-out of $6,000 for each employee)
- taxes that the Inland Revenue Department collects, such as GST and PAYE
- unsecured creditors
- deferred creditors
All the money available for unsecured creditors (if any) is distributed proportionately and the debt is then discharged.
Can I appeal a decision made by the Official Assignee?
As a creditor you have the right to appeal to the High Court against a decision made by the Official Assignee.
Obtaining information on bankruptcies: the National Insolvency Database
The Ministry of Economic Development has established a National Insolvency Database that each office of the Insolvency and Trustees Service has access to. Through this you can search for:
- the bankrupt's name
- the bankrupt's address
- the bankrupt's occupation
- the date and place of bankruptcy
- the time and details of the bankrupt being discharged from bankruptcy (there is an automatic discharge after three years, although the bankrupt can seek a court order to be discharged earlier)
You can also access and search this database through the Ministry's website at www.med.govt.nz (Business and Registries Branch).
- A bankrupt is usually discharged after three years but you may lodge an objection to this in the High Court. It is advisable to consult a lawyer, who can advise you as to the likely success of doing this.