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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.

A person is considered Technically Insolvent when they cannot satisfy the demands of the creditors with the assets they have or unable to pay debts upon demand
Further definition can be found [HERE - Dictionary]

Technically Insolvent can also be considered as Insolvent where a person undertakes transactions up to 2 years prior to bankruptcy
This is what can be classified as an insolvent transaction, which is a transaction which is made prior to the 2 years before being adjudicated 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.

IncomeExpensesSurplusLoan RepaymentSolvent?
Year1500040001000649.50Yes
Year250004100900649.50Yes
Year350004200800649.50Yes
year450004300700649.50Yes
Year550004400600649.50No



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.