KEY POINTS:
The number of people declaring themselves insolvent under new laws outstripped those applying for bankruptcy last month.
The no asset procedure (NAP) regime - whereby a person with no assets who owes a maximum of $40,000 can have their debts wiped within a year - came in on December 3. It has proved popular.
In January, the Insolvency and Trustee Service received 247 applications for NAP and has so far accepted 135. It rejected 37, nine withdrew, and the rest are still in the pipeline.
In comparison, it received 127 applications for bankruptcy, of which 80 were accepted, two were rejected and two withdrew. The rest are still being processed.
In January 2007, before the new regime came in, there were 215 bankruptcies.
Manager Ross van der Schyff said it was expected that NAPs would overtake bankruptcies, as 60 per cent of bankruptcy cases were the sort the new legislation was aimed at, he said.
The regime is meeting a mixed response in the finance industry, with some viewing it as a "get out of jail free" card and at least one insolvency expert predicting it will affect lending policies.
Liquidator Damien Grant, of Waterstone Insolvency, said the NAP regime would push the poorest people into the hands of loan sharks.
He said bankruptcy was an onerous procedure and it was designed to be - it lasted for three years, with an official assignee controlling the bankrupt person's wages.
Knowing that people could apply for an NAP and walk away from their debts would lead to lenders choosing not to deal with certain people, he said.
However Rudi Kats, general manager of Broadlands Finance, said consumer lenders had already tightened up their policies following the spate of finance company collapses.
He said Broadlands would once have given a car loan to someone with $30,000 of debt and no deposit, but now it was focusing on "good second tier" customers and leaving the third tier out.
He said first tier customers were those with no debt, a 25 per cent deposit and no bad credit, not even an unpaid utilities bill. He was in favour of the NAP regime, particularly the requirement for full financial disclosure upfront because it gave the creditor options.
Richard de Latour, chief executive of Instant Finance, agreed that lending policies had tightened. He said one of the industries most affected had been second-hand car dealers who relied on third tier lenders to finance sales.
He told of one car dealer contact who didn't sell a single vehicle in January. "The two good sales prospects he did have he couldn't find anyone to finance them."
Unlike Kats, De Latour was not a fan of the new procedure.
He said the impression from his branches was that budget advisers were recommending NAP as a panacea for people's financial woes. He said that was poor advice.
"At the end of the day the fact that they've gone down this route will be treated no differently by a prospective lender than an ex-bankrupt anyway."
John Roberts, country director of credit reporting agency Veda Advantage, confirmed an NAP would stay on a person's credit record for seven years, the same period as a bankruptcy. However, he pointed to the upfront full disclosure as a good part of the regime.
"At least now with NAP, people have got the ability to sit down with an adjudicator and try and figure out some form of rehabilitation, where they do get some protection from their creditors."
NO ASSET PROCEDURE
Lasts for a year.
The debtor must have:
* No realisable assets.
* Maximum of $40,000 debt.
* Not previously been made bankrupt or used NAP.
BANKRUPTCY
Lasts usually for three years.
* Official assignee controls all the bankrupt's assets and income.
* Bankrupt may not run a business.
* Bankrupt may not leave the country without assignee's approval.
