Time-limited bankrupt records worry industry

Debt collectors are worried about what they see as a "sanitising" of the public bankruptcy record, whereby bankruptcies now drop off the register after seven years.

Whereas once a record of someone having been made bankrupt was permanently available to the general public, now it expires seven years from the time of the bankruptcy adjudication.

It means that if someone has been bankrupted multiple times, it will not show up in a search of the Ministry of Economic Development's register unless the bankruptcies happened within the past seven years.

The New Zealand Credit and Finance Institute, representing the debt collection and credit control industries, advocates going back to the previous system.

National president David Young said there were people who had been bankrupted two or three times over an extended period, and a private credit check did not show this up because those records were also only kept for seven years.

This was where the public record prior to the new 2006 Insolvency Act was useful.

"Previously, you could go in and go: 'Hang on a minute, this guy's had a series of failures' and you [could] spot them.

"It's those sort of people that we need the most protection from."

The institute is also annoyed the new alternative to bankruptcy, the No Asset Procedure regime, will only stay on the public register for its one-year duration.

It is almost a year since the procedure was introduced, meaning the first debtors to enter the regime are about to fall off the record.

Mr Young said part of the issue was the new insolvency legislation's focus on rehabilitation.

The flipside was that financial failure was no longer considered such a big deal.

"I've got no problems with them being more rehabilitative, but if we remove the stigmas then we remove one of the reasons why people don't do it."

Ross Van Der Schyff, manager of the ministry's Insolvency and Trustee Service, said keeping of personal insolvency records was brought into line with the 2004 Credit Reporting Privacy Code when the new Act came in.

The Office of the Privacy Commissioner administers the code and is reviewing it.

"If businesses or others have concerns about the way insolvency and credit-related information is available currently, we would welcome hearing about that during the public consultation period," commissioner Marie Shroff said.

John Roberts, country director of the credit reporting agency Veda Advantage, did not necessarily agree that bankruptcies dropping off the public record was a problem.

It was a small industry and habitual defaulters were apparent, he said.

He said many people were bankrupted because of a situation outside of their control, such as illness or a marriage breaking up, and they needed a second chance.

However, he believed No Asset Procedures should be treated in the same way as bankruptcies, and that was why Veda would keep them on people's credit reports for seven years.

Veda advocates a move to positive credit reporting - whereby people's complete credit histories, including details about income, mortgages, and credit card balances show up in a credit report - to give potential creditors a better idea of a person's reliability.

New Zealand is one of only four OECD countries to maintain a "negative" credit reporting system - meaning that only negative details such as loan defaults and bankruptcies are recorded on a person's credit file. - The New Zealand Herald