If a debtor is unable to repay its debts and believes there is no prospect of this changing, the No Asset Procedure (“NAP”) provides an alternative to bankruptcy as a one-off opportunity to sort out the debtor’s financial affairs without a formal bankruptcy.
Requirements to entering the NAP
A successful application will give a debtor protection from creditors, similar but not identical, to that provided by bankruptcy. To be successful in the application, the debtor must satisfy the Official Assignee on reasonable grounds that:
the debtor has no realizable assets;
the debtor has not previously been admitted to the NAP;
the debtor has not previously been adjudicated bankrupt;
the debtor has total debts not less than $1000 but no more than $40,000 (this does not include student loan); and
under the prescribed means test (which assesses whether the debtor has surplus income after household usual and reasonable living expenses are paid) the debtor does not have the means of repaying any amount towards those debts.
Barriers to entering the NAP
However, a debtor must not be admitted to the NAP the Official Assignee is satisfied on reasonable grounds that:
the debtor has concealed assets with the intention of defrauding his creditors;
the debtor has engaged in conduct that would, if the bankrupt adjudicated, constitute an specified offence;
the debtor has incurred a debt or debts knowing that the debtor does not have the means to repay them; or
a creditor intends on applying for the debtor’s adjudication as a bankrupt as it is likely that the outcome will be materially better than if the debtor is admitted to the NAP.
Consequences of entering the NAP
Once a debtor is admitted to the NAP, creditors are prevented from beginning or continuing any steps to recover a debt owed by the debtor.
However, there are three debts that remain payable despite being under the NAP scheme. These include:
amounts payable under a maintenance order under the Family Proceedings Act 1980;
amount payable under the Child Support Act 1991; and
student loan balance.
The debtor must also comply with the Official Assignee’s requests and notify the Official Assignee as soon as practicable, if there is a change in their financial circumstances allowing them to repay any amounts toward the debts that would otherwise be discharged.
Further, the debtor must not obtain credit (either alone or jointly) of more than $1,000.00 without advising the prospective creditor they are currently under the NAP scheme.
Normally, a debtor is discharged under the NAP scheme 12 months after the date of admission.
Upon discharge from the scheme, the debts that existed on entry into the NAP are cancelled, the debtor is no longer liable to repay any part of those debts including any penalties or interest that may have accrued. However, debts incurred by fraud are not discharged nor is any debt for which the debtor has obtained forbearance through fraud.
The NAP is a great consideration prior to the consideration of bankruptcy as the effects are not as long lasting or as onerous. NAP provides relief from financial pressures for a maximum term of a 12 months, allowing the debtor to get on top of their financial situation.
NAP is but one of the alternatives to bankruptcy. All options ought to be considered as against the facts of the debtor before any large decisions are made.