The Worse My NZ Student Loan Feels, The Better Bankruptcy Looks

You know that deeply triggering psych study where they put a child in a room and explain they’re allowed one marshmallow now or two in the future? I vibe so hard with the kid that just pops that baby straight into her mouth. Why wait? In the moment, instant gratification always seems to be a gamble worth taking.

I blame my debt on a suspected attention deficit disorder mixed with a thrill-seeking bent. Always feeling different was the perfect excuse to act differently, and taking financial risks has always tracked nicely alongside my inability to do almost anything for more than a half second. When you have no track record of completing anything you begin, you see no reason to even try, and that extended to paying things back on time, or at all. Borrow now, borrow as much as you can, and irrationally believe that magically in the future you will chance upon two marshmallows instead of one and it’ll all work out.

The story of my personal consumer debt pretty much ends there. I got a few nice things, a laptop, a necklace, and probably paid rent a few times, no biggie. My student loan debt runs along similar lines. Years of failed papers due to my inattention, plus changing degrees about six times, constantly receiving living costs, not to mention that annual $1000 all-at-oncer that a more forward-thinking debtor would leverage into a bond or a road-safe vehicle. I blew it as frivolously as I did my weekly allotment.

Add it all up, and you’ve got nearly 80k worth of damage. Staring down the barrel of that means a lifetime of incremental payments, never really getting anywhere. But what if there was a way out? Whenever the topic of crippling student debt comes up within my peer group so does the dirty b-word—“bankruptcy”. I have often considered it as a serious option. But what are the risks and rewards?

Anton, 36, (not his real name) owed around 100K. His debt started accumulating in ways that most students are familiar with, small personal loans and university fees. “In my first year at university, I got an overdraft from the National Bank of like 1000 bucks, which I qualified for as a student. And then, of course, my student loan.”

One day, Anton decided he had had enough. “It was coming up to Christmas and I was getting depressed—I wanted to do something for myself, so I cleared my debt of 100 grand.” Treat yo self, indeed!

Before Anton declared bankruptcy his credit cards and overdrafts were maxed all the time, and he was wasting up to $80 a month on the accompanying fees. And then there was the veritable bounty of student debt. He admits that a lack of personal responsibility played a role. “My peers didn’t all fall into that pattern, but at the same time, you still have a child’s brain when you’re 18 or 19.”

Another bankruptee, Amy, 29, (again, not her real name) lived in Australia and couldn’t get a handle on her expenses and income in general. She was making between 30 and 40k per year, which meant she could afford to live, but not meet the minimum payments for an overseas borrower with a New Zealand student loan. Her situation had a negative flow-on effect into other areas of her life. “I basically began to feel quite worthless and it began to affect my work. You don't feel up to reaching out for good jobs when you are so in debt you'll take anything, from bosses that try to fuck you, or make you do things outside of your job description, and even pay you late.”

So she declared bankruptcy. She doesn’t speak as glowingly, however, of the experience as Anton does. “Going bankrupt isn't a silver bullet. It's not going to magically resolve the problem. It's very, very, very rare that you are better off going bankrupt.”

She found that getting financial counselling and good reputable financial advice was ultimately what put her on a better path. Her resolve to change her habits post-bankruptcy show that the experience can be transformative. “Going through your bank statements line-by-line for the last ten years will reveal more about who you are, and why you are in debt, and what the problems are. Even just doing one year will change your life.” If you want to declare bankruptcy, you simply visit the New Zealand Insolvency & Trustee Service (ITS) website and apply online. Once you’ve become bankrupt, which Anton told me happens overnight, an official assignee acts as your trustee, overseeing your incurred debts. Your name, address and debts become public domain, listed on the innocuously named New Zealand Gazette.

The no-longer-indebted individual receives a notice to prove to creditors that you are now bankrupt, and from that point onwards they deal with the assignee rather than you. Because the assignee now ostensibly owns you, you must ask their permission to leave the country, which turns out to be a lot less scary than it sounds, as Anton explained. “I've been on holiday a few times since becoming bankrupt. You write a letter to your official assignee, there’s an online form you fill out, and you get permission pretty quickly. It doesn’t take very long. It’s a minor inconvenience.” Cool.

You’ll be stuck on bankruptcy island for three years, during which borrowing is more difficult. You’ll be legally required to tell any lender of your status, unless it’s an amount under $1000 and, while some small lending organisations specialise in lending to bankruptees, they use prohibitively large interest rates to balance the risk.

Not all debt is wiped. You’ll still have to pay child support maintenance orders, court fines and criminal reparations. The ITS representative I spoke with wasn’t willing to give a definitive answer on whether a house would always be liquidated to pay creditors, saying these details were decided on a case-by-case basis, weighing up the value versus the debts with other factors such as the individual’s living and family situation.

You remain in control of your day-to-day budgeting, they can’t touch your KiwiSaver as long as you don’t withdraw your funds during your bankruptcy, you get to keep any tools needed for your work up to a certain value, a car worth up to $6000, cash up to $1200 and items on hire purchase, as long as you continue making payments.

The assignee won’t make you pay anything out of your salary that you’re not comfortable with, or from what I could ascertain, at all. When you first declare bankruptcy, you’re asked to put forward a budget of how you will spend your income, and as everyone's outgoings and costs are different, I was told by the ITS that it’s a conversation between you and your official assignee. So why doesn't everyone declare bankruptcy? Well, there’s the social stigma. A common fear is that employers, should they find out, may not want to hire you because your insolvency might be an indication of weak moral fibre and a lack of work ethic.

According to Dr Ryan Greenaway-McGrevy, Senior Lecturer in Economics, Faculty of Business and Economics at the University of Auckland, the average amount of student loan debt as of 2017 was $22,000, which, while a lot, probably isn’t enough to push most borrowers towards personal insolvency. “You can imagine what the impacts of [bankruptcy] at that level of debt is on an individual's choices when it comes to working, when it comes to settling down to have a family and perhaps buy a house, obviously it delays all those things.”

But, to return to my own case, and having considerably more debt than the average, what am I left with? I spoke with a friend and financial advisor, David, (who wished to only be known by his first name) about my finances, and my options. We mapped out all my debts and obligations, and after the dust had settled, it turned out that if I wanted to make good on all my obligations I would have $120 to live on each week. He told me that it was difficult to see how that would work and recommended I talk to the insolvency office about bankruptcy options.

There are plenty of ethical considerations surrounding debt, such as personal accountability and just generally not wanting to rip people off, not to mention the social stigma, but it’s hard to deny that the chance to start again has a lot of upsides. And while bankruptcy isn’t exactly flipping over the Monopoly board and starting again, it’s not too far off either.

The outlook for those who were previously struggling under the burden of debt seems a whole lot brighter. “Running out of money was normal for me,” says Anton, “and it’s not normal for most people. And it hasn’t been normal for me for a while. Now that I am out of it, I don’t owe $100,000 anymore, and I’m much better with my spending and saving.” And if those at the top of the economic tree feel no scruples about using the system to their advantage, Anton reasons, why should those at the bottom not do the same? “When the people who are winning are cheating, you’d be a sucker to play by the rules. The most successful people in society are willing to declare bankruptcy and live better lives on account of it or put themselves in situations where they are going to get bankrupt, and still live in luxury on trusts. Why shouldn't I be able to make a decision to improve my life, just because I’m not a millionaire?”