Student debt: The last resort
As far I can see, the only meaningful question is whether bankruptcy is a smart financial move.
Obviously it’s a last resort, and should only be considered after exploring all the other options laid out in last week’s column. But how bad is ‘bad’?
According to the Insolvency and Trustee Service: ‘‘Bankruptcy may be a good insolvency option for you if you owe more than $50,000.’’
By my calculations, that includes something like 70,000 student loan debtors. Most of these people live in New Zealand: their loans are interest-free, with no repayments below a certain income threshold.
It’s the ~20,000 heavily indebted overseas borrowers who are more likely to consider bankruptcy – and who also might find the process less ruinous.
Once you push the big red button, all your New Zealand assets become the property of the Official Assignee, with the exception of furniture, a cheap car, tools, and a little cash.
If you own stuff overseas, the Official Assignee might have your bankruptcy recognised in the overseas country and deal with those assets too, but not necessarily.
As an overseas bankrupt, the usual travel restrictions are not an issue either: no need to ask permission to leave New Zealand when you’re already gone.
And of course, you have much better odds of keeping the whole thing quiet. Yes, your name and personal information will be published in the New Zealand Gazette, but it won’t necessarily make it to your employer’s ears.
Compare that to New Zealand, where you’d have to give your employer a new IRD number, which is a bit of a giveaway, and might even threaten your job security.
It’s less likely that you’ll be able to protect your credit rating, even if you’re overseas. Many credit reporting companies operate internationally, and your name is easily searchable on the Insolvency Register.
If you take the nuclear option, you’ll spend the next three years or so in financial limbo. You’ll have to explain your household budget to the Official Assignee, and make repayments if you earn over a certain threshold.
Even after your bankruptcy ends, it will be difficult to borrow money again. It might hurt your employment prospects, or ability to rent property. You will have to start over from scratch, with nary a cent to your name.
But your student loan will be gone forever. Is it worth it?
For most people, absolutely not. For a small number of overseas borrowers, yoked with a debt millstone they have no prospect of ever repaying, it’s at least worth considering.
Got a burning money question? Email Budget Buster at richard.meadows@thedeepdish.org, or hit him up on Facebook.