Questions that you should know the answers to:

• How old will you be when you pay your student loan  debt off?
• How much interest and penalties will you have paid by then?
  
  • What about if interest is reintroduced for New Zealand resident student loan borrowers?
    
  • What about if interest rates increase by, say, 5%?
  • What about if the bankruptcy option was removed?
• How much better off, psychologically and financially, would you be if the realistic, expected repayment date was sooner?

If you don't like your answers, or you don't have a realistic idea of your answers, what positive steps could you start taking now to change this?

It's the time of year when people start thinking about a Christmas visit to family and friends in New Zealand. Many of you with substantial overdue arrears will be at risk of arrest if you return to New Zealand. You can remove this risk by sorting things with the IRD, or by becoming bankrupt under New Zealand law. If you become bankrupt you will then need to apply for travel permission to safely leave the country. When do you need to get things under way?

Assuming that it will be slower and more difficult to get things done after around 15 December, this should be the  final date by which everything is done. You cannot apply for bankruptcy travel permission until you are actually bankrupt and this process typically takes about two weeks. To be safe, you should allow three weeks as it is a busy time of year. Ideally you would apply for travel permission earlier, and before buying tickets. If we assume that you need to apply for travel permission by three weeks prior to 15 December this gives us a date of 24 November.

You then need to allow time to draft your bankruptcy application (between one day and around two weeks, in most circumstances), and for the Official Assignee to process your application and make the bankruptcy order (usually 2-3 weeks). Taking 5 weeks to be safe, the bankruptcy process should begin in earnest before 20 October if you want to  have a trouble free visit to New Zealand. Ideally you would start the process now so that there is plenty of time and you know that everything is sorted before buying tickets. 
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If you need assistance to get matters resolved we can help. At the moment we have some special packages available. Please ask if this is of interest

In a recent Guardian article, MH Miller discusses the impact of living with a $100,000 student loan debt and of being incapacitated by that debt for many years:

In many cases, student loan debt allows people to borrow money they have no hope of repaying, transforms the post graduation years into an economic wasteland, and defers, for many decades, the borrower's ability to participate personally in the normal milestones of life like buying a home, starting a family, starting a business, or retiring. Economist Steve Keen states that student loan debt:​

As one commentator stated, student loan debts are a place where nightmares are real.

The purpose of laws like the Credit Contracts Act 1981 and the Credit Contracts and Consumer Finance Act 2003, is to protect people when they are taking out a loan, by ensuring that the borrower has sufficient information about the debt and their rights (including interest rates), and by providing protection to the borrower if they get into financial difficulties before the debt is paid off.

Student loans are excluded from the protections offered by credit legislation. Student loans are often taken out by our most vulnerable young people and few of them really understand the massive implications of that debt. Shouldn't they have the same protection as other kinds of borrowers?

To resolve your student loan debt problem you need to start with the truth:

• What is your current debt balance and breakdown?
• What are your available options.
• What can you afford.

Once you know the truth, you can move forward knowing that you have made the best, most realistic, decision on the basis of reality.

We can obtain your current debt details and advise you on your available options. Then in our ongoing discussions, with you, about affordability, the best answer will usually emerge.

Let's consider two scenarios:

• Kate is 25 years old and living overseas. Her student loan debt is $25,000 and she has not paid anything since she moved to Australia 3 years ago. Kate intended to pay when she got on her feet but since being in Australia she has only been able to find casual work and she finds it hard to get by.
• William is in his late 40s. He moved to Australia 20 years ago, after graduating with a student loan debt of $15,000. He is a well paid professional, with a mortgaged home. He lives a lavish lifestyle and he has built up debt in Australia. Despite having a good income, he never seems to have spare money. In the last 20 years he forgot about his student loan debt as he heard nothing from the IRD. Two weeks ago, the IRD contacted William and told him that his debt was $90,000 and that the arrears portion of $60,000 needed to be paid immediately, or else.

Both William and Kate could apply for hardship which would mean that they were no longer behind on the debt arrears (capitalised on to the core debt with an interest adjusted) and give them an opportunity to have a fresh start with payments. In Kate's case, her minimum payments would then be around $40 per week ($2,000 per year - payable in two instalments) and the IRD states that the debt should be paid off in about 18 years. Kate could try to get a second job and crush the debt by throwing every spare dollar at it. This path won't necessarily be easy, but many people do hit debt hard, and at this level of debt, it wouldn't take long to get rid of it in full forever. In William's case, even if hardship is granted, he will still have a massive debt. If he hasn't managed to deal with his debt in the last 20 years, when it was smaller, is it realistic to hope that he can deal with it now? Some people do manage to resolve a debt at this level but that is rare. For William, a hardship application may take the immediate pressure off but it just means that he still has a debt headache to deal with in the future. William is middle aged and he doesn't have many working years left, compared to Kate. If his arrears are capitalised, and he pays the IRD's minimum of $5,000 per annum, the IRD's calculator suggests that the debt will never be repaid. How will he pay off his mortgage, and save for retirement, with a huge student loan debt millstone?

Both Kate and William could consider a payment arrangement with the IRD for the arrears. If this is accepted, they will have to pay their minimum annual payments in addition. Under this scenario, Kate is also much better off than William as both her arrangement payments and annual obligations are likely to be far less and, therefore, more manageable. The IRD may also look more favourably on Kate as she has come to them at an early stage.

​If bankruptcy needs to be considered, Kate is also in a much better position than William. Bankruptcy usually lasts three years and Kate will still be young when she comes out of it. Kate is used to managing on a small budget and being bankrupt won't make much difference to her lifestyle. She has no assets to lose. She will have plenty of time to rebuild her life financially. William owns a home and he may lose it if he becomes bankrupt (this outcome is not certain but it is possible and will be affected by various factors). William's lifestyle expenses are likely to be curtailed while he is bankrupt, and he may face having to restart financially when he is around 50 years old. William's bankruptcy option is more difficult than Kate's, but if bankruptcy is William's best option he is probably better to do it now when he is in his late 40s, rather than when he is even older.

We deal with people like Kate and William all the time. It is much better to deal with your debt sooner rather than later. Not only is there less debt to deal with, there are better resolution options, and the impact of resolution on your life, now or in the future, may be significantly less. If you are a William, please don't let that get you down. You can still deal with the debt knowing that it is better to do this now rather than to put it off even longer.

Bankruptcy in New Zealand is generally a civil matter. It is a clinical remedy that gives people, with overwhelming debt, a fresh start in life. Most people who find themselves in this situation have been affected by factors beyond their control like unexpected unemployment or illness. In the case of student loan debt, a common scenario is a demand for payment of an enormous amount by the IRD, after many years of silence during which the debt has grown to an unmanageable size.

Most bankrupts find the process relatively smooth and wish they had done it sooner. Unfortunately a small minority end up crossing the line and becoming bankruptcy criminals. Bankruptcy criminality can attract severe punishment, including prison time. There are a number of ways that a bankruptcy can become criminalised, mostly revolving around dishonest information or dealing with assets, however, the most common one may be leaving New Zealand without prior permission. It is a criminal offence to leave New Zealand without permission if you are a New Zealand bankrupt. It is an offence that can be easily detected by the Official Assignee and which could cause serious consequences for you during the bankruptcy, or many years later. There is no need to be in this situation as the permission application process is straight forward, and bankrupts who live overseas, but wish to visit New Zealand, are rarely declined. It is best to apply for permission before you travel to New Zealand, but if you've had to come here urgently because a family member is sick you can apply while you are here. 

Bankruptcy is an effective remedy that can resolve overwhelming debt stress and give you a fresh start. Don't let it become a problem.

A recent media article highlighted New Zealand's longest bankrupts: one person has been bankrupt since 1998, three since 2000, and one since 2001.

For the vast majority of bankrupts, who file a debtor petition, discharge from bankruptcy occurs automatically at exactly the three year mark with no fuss. For bankrupts who have had a creditor petition filed, it is likely that they will be bankrupt for more than three years, and there is no upper limit if those people do not complete the correct paperwork.

If you need to become bankrupt it is worth making sure that it is done right so that there is light at the end of the tunnel.

Official Information Act figures show that, in one recent month, the IRD hung up on 45% of callers before they could get through. That was 286,392 calls. Callers often face long waits, that is if they get through. If you email, the response period can be 2-3 weeks, but in some cases it takes up to a year.

The IRD charges interest and the longer it takes for you to get through and resolve your debt, the more the IRD earns. We believe that this is an unacceptable conflict of interest. 

Now is the best time to negotiate with the IRD about your student loan debt. In September the IRD becomes super busy  and this may mean delays in dealing with your case and that it does not get the attention it deserves. Here are some general principles:

• Under some circumstances, the IRD can write off penalty interest and/or ordinary interest. You need to find out how much of each has been charged to your account and whether you have grounds for a write off.
• Some people can get large write offs.
• If you have grounds, and if there is a potentially available write off, the IRD usually has some leeway in how much they will grant you within the leeway zone. "How much" can be affected by your circumstances and other aspects of the case.
• In some cases, ongoing negotiations produce improved results, but generally the IRD has a limit to how often they will engage with a particular debtor before they refuse to engage further and escalate the case to legal.
• If you don't have grounds, don't waste your time by asking for something the IRD can't give. If you don't like the limits that the IRD has for write offs, complain to the politicians who created the system. The IRD is the collection agency for the New Zealand government. It is the New Zealand government that has made the laws that have created enormous debts, bloated with billions of dollars of interest.
• Your debt probably took years to reach the level it is at now and it usually can't be resolved in an instant. Although it is often possible to resolve things with the IRD within 2-3 weeks, sometimes it takes much longer. 

​Whatever the details of your case, we will have seen many similar fact and debt situations before because we deal with so many student loan debtors. This means that we can quickly tell you what your realistic options are. Being fully informed can make a big difference.

Financial stress is hard on relationships, so it can't be much of a surprise that student loan debt destroys marriages. According to a recent survey, 13% of people with a student loan debt blamed the debt for the ending of their marriage. To make matters worse, if a couple separate, debt borrowed by one partner can be shared.

​Student loan debt causes many people unbearable stress. Not only does it destroy relationships, it causes people to be unable to buy a home, start a business, plan for retirement, or start a family. 

The longer you have toxic debt, the worse the potential impact on you and way of life. It needs to be dealt with.