Here's how many New Zealanders are going bankrupt

The number of New Zealanders filing for personal bankruptcy has significantly decreased compared to previous years, according to recent data. This decline appears to coincide with increased usage of KiwiSaver funds for hardship purposes. The statistics show that personal bankruptcy numbers dropped from over 3,000 annually in the 2017/18 fiscal year to under 1,500 in the 2024/2025 year. This includes cases involving no asset procedures and debt repayment orders. Simultaneously, the frequency of KiwiSaver withdrawals due to financial hardship has reached unprecedented levels. Jake Lilley, a representative from the financial mentor network Fincap, suggested that these two trends are likely connected. He noted that many individuals opt for withdrawing from KiwiSaver rather than undergoing insolvency processes such as no asset procedures, despite potential long-term benefits of the latter. A no asset procedure allows individuals to clear unsecured debts up to $50,000 without possessing realizable assets. However, Lilley indicated that people tend to choose KiwiSaver withdrawals even when insolvency might offer greater relief in the long run. He attributed this preference partly to historical stigma surrounding insolvency, which dates back several centuries when debtors faced harsh treatment. Lilley also highlighted concerns regarding the impact of insolvency on essential services access. While the Electricity Authority has initiated efforts to improve energy contract accessibility post-insolvency, progress remains ongoing. Additionally, certain banks have made strides in ensuring continued banking access for insolvent individuals. Shamubeel Eaqub, chief economist at Simplicity, acknowledged that allowing individuals to bypass severe financial distress via KiwiSaver is not necessarily negative. Most applications relate to job losses or significant health challenges, emphasizing the importance of personal savings during crises. According to a recent survey, nearly half of the time spent by financial mentors involves addressing KiwiSaver hardship withdrawal requests. Christine Liggins from DebtFix clarified that KiwiSaver can only be accessed for arrears, not for clearing non-overdue debts. Nevertheless, she pointed out that the statistics suggest individuals are becoming aware of alternative solutions and are increasingly seeking debt resolution agreements with creditors. Responsible lending laws require lenders to evaluate borrower requests for assistance during unexpected hardships. These measures can involve extending loan terms to decrease monthly payments or offering temporary payment pauses. Despite these provisions, approximately 450,000 individuals remain behind on their payments each month, indicating persistent financial struggles among many. Liggins expressed skepticism about the current bankruptcy system's effectiveness, suggesting its abolition in favor of more flexible debt solutions. She argued that individuals should not be labeled as bankrupt for extended periods, proposing a system where debt resolutions range from paying nothing to paying anywhere between zero and 100 percent of owed amounts. Inland Revenue’s actions against companies owing tax debt could lead to future increases in bankruptcy filings. Liggins warned that corporate liquidations might result in subsequent bankruptcies for directors or owners of small firms. She emphasized the need for reforming the existing bankruptcy framework to better accommodate modern financial realities and provide more viable alternatives for those facing economic difficulties.