Insolvency In NZ
Are you insolvent? What is Insolvency?
What is the meaning of Insolvent?
Insolvency is (in simple terms) the position where a person cannot afford to pay all of their debt and living expenses.
This is different from an insolvent transaction, which is a transaction which is made prior to the 2 years before being made bankrupt / applying for a debtors petition for bankruptcy.
The Insolvency act 2006 refers to insolvency and insolvent transactions in part 3 Subpart 7 - section(s) 192-197
An insolvent person may not be 'technically insolvent' (i.e. through a formal insolvency process), but may be in a situation such as reduced earnings, temporarily increased expenses, such as increases in power over winter, rising food prices, and other living costs etc.
The proximity to Insolvency depends on leverage, i.e., how much of a persons disposable income is committed prior to receipt.
If you have 100% leverage on your income, any increase in expenses may push a person from being solvent to insolvent.
An example of this would be someone that has taken out a fixed term loan for purchase of a vehicle.
The loan term in this example is a loan with 60 Months repayments at $150.00 per week.
Static monthly Payment is $649.50 (based on 4.33 weeks per month)
The following table is a representation of how a person can easily slip into insolvency.
This table is a common occurance in New Zealand(2011) where the last few years have seen static (or reducing) payments for income, and increasing payments for rising food prices, petrol, rent, and the increase in GST to 15% on top of the already rising prices for other goods and services.
| Income | Expenses | Surplus | Loan Repayment | Solvent? | |
| Year1 | 5000 | 4000 | 1000 | 649.50 | Yes |
| Year2 | 5000 | 4100 | 900 | 649.50 | Yes |
| Year3 | 5000 | 4200 | 800 | 649.50 | Yes |
| year4 | 5000 | 4300 | 700 | 649.50 | Yes |
| Year5 | 5000 | 4400 | 600 | 649.50 | No |
The writer urges you to use the above information as a starting point to expand your knowledge in order that you may avoid becoming a statistic on
the insolvency / bankruptcy register.
