The devastation of personal bankruptcy can also bring hope for those struggling with debt

Kate, whose name has been changed to protect her identity, says she never expected to go bankrupt.

But when her relationship failed, and took most of her business with it, she had little option.

Her partner was the talent of the business while she had fulfilled a management and marketing role.

Getting contractors in to replace him was expensive.

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She fought to keep the business going long enough to fulfil all the orders and repay the businesses she owed money.

But when she had paid all of those bills and was still left with $50,000 owing to the bank, it was time to do something.

"I bankrupted myself as the sole director. I had a look at a personal loan to repay the debt but the repayments were more than I would earn."

She was left unable to borrow money for seven years and expects buying a house in future could now be harder.

But she was pleased to be free of the debt that hung over her.

In the woodclad rooms of the old Auckland High Court, lawyers representing banks, Inland Revenue and businesses of all shapes and sizes take their seats at the long tables that dominate the room.

Everyone stands for the arrival of the judge and the first session of that week's bankruptcy hearings begins.

Unlike Kate, who went into bankruptcy voluntarily, these were forced cases. A bank, business or government agency sought a decision on the financial state of an individual.

When Stuff visited, it was a quick process. Three times the registrar called cases and no one replied. These were put off until the following week. If neither side showed up, the case would eventually be dismissed.

When the fourth case was called, the lawyer for Inland Revenue stood and told the court a payment agreement had been reached. 

She sat down minutes later and the next case was called. It was another Inland Revenue case. 

The lawyer stood again and asked for the case to be withdrawn on hardship grounds. The would not be seeking money from the particular debtor. The judge nodded and withdrew the case. 

Another call was made for people involved in the first three cases. It was met with silence.

From start to finish the first session of the day took just 15 minutes.

That Thursday in the Auckland High Court there would be two more bankruptcy sessions. They were even shorter than the first. 

The rate of bankruptcies has dropped significantly since the 2008 global financial crisis.

In 2009, there were 2521 bankruptcies filed. In 2018, this number was down to 1486. 

With just one month left to add to the most recent tally, it is likely that there will be a further drop for 2019.

Legal scholar Nikki Chamberlain said bankruptcy trends tended to reflect cycles in the economy.

"At the moment, the bankruptcy applications are down and this is a reflection of the economy and a reflection that the banks don't have the appetite or need to push for bankruptcies at the moment because of the economy," Chamberlain said. 

"So what happens is, when interest rates are low people can go get lending, they can make their repayments, everything is well and good."

However, an economic downturn and higher interest rates could impact on a person's ability to keep up with payments.

"Something that is affordable now may not be affordable in three or four years and then you have people defaulting on their loans. The banks and lenders are going in and trying to recover, and if they can't recover then that's when they start looking at insolvency and bankruptcy proceedings," she said.  

Lawyer Paul Sills said how much impact declared bankrupt had depended on personality of the person. 

"There's two parts to it. The whole effect on the person and how they feel about their self worth and competency," he said.

"The second half of the consequences is all in around credit rating and the ability to borrow and the ability to move forward in life. My own view is it still has a very big impact.

"A lot of people end up in an insolvent situation not because they are crooks or loose with money or have huge gambling debts. They end up in that situation because they are trying to survive," he said. 

Those who had the money to create a trust could protect their assets while personally going bankrupt. 

"​Bankruptcy for some parts of society scarcely slows them down," Sills said. 

"The impact of a bankruptcy finding on your average New Zealander is demonstrably more catastrophic than on a shrewd businessperson who squirreled away a whole bunch of assets and is quite happy to use the law to make sure they stay protected."

He believed Parliament should offer small and medium-sized businesses a tool similar to the farm mediation bill that would push for conversations between lending institutions and borrowers before things go to bankruptcy court.

"So rather than having hearses or ambulances at the bottom of the cliff, lets talk about having more gatekeepers at the top of the cliff," he said.

"I have long stopped thinking bankruptcy is entirely the fault of individuals. Society, social pressure, the way the western world lives its life has something to answer for it too. We all have a role to play in it."

Source: Stuff.co.nz

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