What effect will a credit listing have on me?
What to do about a debt that you cannot pay
The most important thing is not to ignore your debts. Creditors will not just go away. At the very least someone who ignores their creditors will be listed with a credit rating agency such as Baycorp or Veda Advantage. At the upper end of the scale you can be sued, and enforcement steps can be taken to take a portion of your pay or seize your assets. The time limit to collect on a debt will usually be six years. This is a long time, and very few debts ‘time out’. Even if your creditor is a company that has gone into liquidation, the liquidator will be entitled to collect the debt from you and will almost always chase this up.
Most companies take a pragmatic approach to debt collection. They want their money from you, and they probably don’t have anything against you personally. If you can make a realistic offer for payment over time this will probably be accepted. If you can prove that you genuinely have little or no income, a creditor might accept payment based on a calculation of what you can afford. Even paying $10 or $20 a week might be enough to stall enforcement steps. Anything is better than paying nothing and waiting to see what happens.
If your creditor agrees to extend the time for you to pay, or agrees not to take steps if you pay a certain monthly or fortnightly sum, try to get this in writing (if only just an exchange of emails.) An agreement like that would probably be legally enforceable and could protect you if the creditor changed their mind later on.
Your Options
If your debts get out of hand, there are some legal options to help you.
If your debts are less than $40,000 you can apply for a summary instalment order. This is an agreement between you and your creditors that you will pay them over time (usually three years, sometimes five years.) Your progress is managed by a supervisor. The benefit is that further interest and fees cannot then be added to what you owe. Usually a budgeting service can help you with this.
There is also the “No Asset Procedure” which is available if you have debts between $1,000-$40,000 and no significant assets. The procedure prevents your creditors from pursuing you, and after a year your debts are wiped. Within the year your finances will be managed by the Official Assignee to try to pay back your creditors. Further information on the No Asset Procedure can be found on the Resources page of our web site, key word “insolvency”.
Declaring bankruptcy is the last resort. What many people don’t know is that bankruptcy may actually help the debtor more than their creditors. If you are bankrupt you cannot manage a business, leave New Zealand, or be employed by a relative. Like the No Asset Procedure, your creditors cannot chase you, and after you are discharged, your debts are wiped. Bankruptcy lasts for three years, and during this time you are subject to many restrictions and your finances are managed by the Official Assignee to try to pay back your creditors.
Entry into these schemes is recorded and will show up on your credit history.
Headaches With Credit Records
If your debts are listed with a credit reporting company like Baycorp, and you subsequently pay them, your listing can be changed to show this. However from time to time credit reporting companies get it wrong and this can have serious consequences. This may be because they are given incorrect information by people who claim that you owe them money. Your credit history is your personal information. You can request access to it, and this should be provided free unless the request is urgent.
You may demand that incorrect information be corrected, and if the company has grounds to refuse this they must at least add a note that the information is disputed. The Credit Reporting Privacy Code 2004 is a system monitored by the Privacy Commission, and you have a range of options if you dispute your credit record, including a formal complaint to the Privacy Commissioner. Just remember that if a credit reporting company is sharing incorrect information about you, you need to alert them to this so it can be corrected.
If you owe money that you can’t pay there are options available to you. The crucial thing to remember is that doing nothing will not solve your problems, and you need to seek help. Your local Citizen’s Advice Bureau, budgeting service or Community Law Centre should be able to point you in the right direction.
This article was prepared by Nathan Tetzlaff, a solicitor with Gaze Burt, lawyers in Auckland.
