KiwiSaver raid law planned
Letting creditors raid KiwiSaver accounts threatens to end one of the more gentlemanly practices in banking.
When someone fails on their mortgage payments, their home can be sold.
It’s an awful experience for any human to go through.
Possibly only the death of a loved one, or dealing with Earthquake Commission and insurers after an earthquake, is more traumatic.
Generally when someone loses their home in a mortgagee sale, they have poured every cent they can into trying to save it. There’s nothing left to take.
The bank is realistic. It writes off any money left owing, and lets people leave with their dignity and their furniture.
In these circumstances, the bank rarely bothers to bankrupt people.
But that could change. Government has a plan to allow the Official Assignee (the government agency that handles bankruptcies) to take money out of people’s KiwiSaver accounts if they are bankrupted.
If the law passes, banks will use it.
Former homeowners will find the sale of their home is just the main course. Bankruptcy will be for dessert, followed by the ‘‘cheese and biscuits’’ of seeing their KiwiSaver drained.
Even if bankruptcy doesn’t happen, the threat of it will mean people will willingly agree to the next best thing- a Summary Instalment Order.
You can think of this as a form of bankruptcy lite but with less stigma. KiwiSaver will still get drained.
The Government’s logic is undeniable. If you borrow money, you should pay it back. There’s no special reason why money you’ve put in a KiwiSaver account should be excluded.
And yet, my heart aches at the thought.
Debt traumas will be that little bit worse. There will be no such thing as unsecured debt. Everything will be ultimately ‘‘secured’’ against KiwiSaver.
Remember, some people fail on their home loans because they have really bad luck.
We’ve constructed a fairly merciless society with unstable work and huge mortgages.
There’s more scope for really bad luck than there used to be.
Bankers have been big winners from Government policy which has contributed to the huge run-up in our collective mortgage debt ($220 billion and counting). This law wouldn’t upset them either.
For ordinary people, it would make taking on debt even more serious than it is now.
GOLDEN RULES
❚ Debt is only for important things
❚ Consumer debt will keep you poor ❚ Doing without a flash TV won’t kill you
My thoughts on debt are these.
Take on as little consumer debt as humanly possible. Debt is only for important stuff. That’s buying a home, starting a business and buying a modest car.
Things like holidays and TVs should be bought out of savings. If you can’t save for them, do without.
When you have debt, you should be working hard to kill it as fast as possible, and make sure you have adequate insurance.
When you are in debt, you have given other people power over you and your loved ones.
If this law passes, you’ll be giving them power over your KiwiSaver account too.