Car finance after an insolvency proposal in NZ

Where a proposal sits among the options

New Zealand has several ways to deal with debts you cannot pay on the original terms. The Insolvency and Trustee Service lists three formal procedures run through the Official Assignee: a Debt Repayment Order, a No Asset Procedure and bankruptcy. A proposal is a different thing. It is a formal agreement between you and your creditors about how and when they will be paid, set out in the Insolvency Act 2006, and the Official Assignee does not run it.

Consumer Protection says a proposal may be accepted by your creditors if you owe more than $50,000 in unsecured debt but can make some payments, that the court must also approve it and that a registered insolvency practitioner administers it. Community Law adds that a majority of creditors holding at least 75% of the debt by value must agree, that plans usually run three to five years and that a trustee oversees the payments.

That is why a proposal lands differently on a car loan application. You are not in a period of bankruptcy, and you are not asking a lender to ignore a bankruptcy discharge. You are showing a lender a court-approved plan and, ideally, a record of keeping to it.

Fair Finance is a referral service, not a lender. We only help people who are not currently bankrupt, and we cannot promise approval. If you are an undischarged bankrupt, see our page on discharged bankrupts for what comes next.

Finished or still running

Lenders will ask which of these you are.

• Completed. You paid what the proposal required and it has ended. This is the strongest position, because you can show the whole story: the debts, the plan and the finish.
• Running and on track. You are making the payments on time. A lender will weigh the proposal repayment as a regular commitment, which cuts into what you can afford for a car.
• Running but behind, or failed. A lender is likely to want the problem fixed first. Talk to your trustee about where you stand before you apply.

If your proposal is still running, read its terms before you apply anywhere. A proposal may restrict new credit, and taking on a car loan without telling your trustee could cause trouble you do not need. Ask in writing and keep the reply.

What a lender will actually see

The credit file is only part of the picture. The official pages do not spell out how a proposal is reported, so treat the following as things to check rather than assume.

1. A proposal entry, if the bureau holds one. Schedule 1 of the Credit Reporting Privacy Code sets fixed periods for bankruptcy, No Asset Procedures and debt repayment orders, and it does not list proposals. Ask each bureau what it holds and for how long.
2. The debts behind it. Defaults and judgments that led to the proposal keep their own clocks. The Code gives defaults five years from the date of default and judgments five years from the date of judgment, whatever happened to the debt later.
3. Repayment history. Payments are tracked for two years. A run of on-time months during and after the proposal is the best evidence you can build.
4. Enquiries. Previous enquiries stay for four years, so applying to many lenders in a short space of time leaves a trail.

Order your free reports from Centrix, Equifax and Experian, the bureau that took over illion’s credit reporting in New Zealand, although many lenders and older pages still say illion. Our page on car finance with defaults covers how to read the default entries.

What lenders weigh after a proposal

• How it ended. Completed in full is very different from stopped part way.
• How long ago. Time with no new problems counts for more than anything you say.
• Income now. Payslips, or three months of bank statements if your pay varies. See minimum income for car finance.
• Room in the budget. Lenders must check affordability under the CCCFA. If your proposal payments are still coming out, show how the car fits beside them.
• The size of the ask. A modest loan on a reliable, cheaper car is easier to say yes to than a stretch.
• A deposit. Even $1,000 reduces the loan and shows the habit of saving.

What to do, step by step

1. Get the paperwork together. The approved proposal, any trustee summaries of receipts and payments, and the letter confirming completion if it has finished.
2. Read your files. Get all three bureau reports and list every entry linked to the proposal.
3. Fix what is wrong. Credit reporters must decide a correction request within 20 working days or tell you why they need longer. Put it in writing.
4. Build a clean run. Pay rent, power and phone on time. If a bureau shows repayment history, a few clean months show up there.
5. Set a budget ceiling. Work out what you can afford after rego, insurance, fuel and any proposal payments, then borrow below it.
6. Apply once. One soft check through a referral service avoids a string of hard checks.

A worked example (illustrative only)

These are round, made-up numbers. They are not a quote.

Your proposal finished eighteen months ago, you have worked steadily since and you want a $9,000 car with a $2,000 deposit, so you borrow $7,000. At an example rate of 22.95% over 48 months, repayments are roughly $224 a month and you would pay about $10,750 in total, around $3,750 of it interest.

Now suppose your proposal is still running at $120 a week, about $520 a month. A lender looking at your budget sees $520 going to the proposal and $224 to the car, so the car is competing with a large existing commitment. A $5,000 car with the same deposit leaves a $3,000 loan and a repayment near $96 a month, which is much easier to fit. The point is the sum, not the figures. Test your own with the repayment calculator.

Red flags

• A lender or broker who talks as if the outcome is settled before looking at your file.
• Being told your proposal “does not matter” or “will not show”. Lenders can ask you directly.
• Pressure to sign the same day, or fees you were not told about.
• Anyone who offers to “clean” your credit file for a fee. Only the creditor or the credit reporter can correct an entry.
• A quote that will not show the total cost of credit.

Cheaper routes to consider first

• Good Shepherd Good Loans. No-interest, fee-free loans of up to $7,000 for a car, with income limits and other criteria.
• MoneyTalks. Free budgeting help on 0800 345 123, including help talking to creditors.
• A Community Law Centre. Free initial advice on your proposal’s terms.
• A cheap cash car or public transport while the proposal finishes.

If the secured car loan gets tight while a proposal runs

A proposal deals with unsecured debts. A car on finance is a secured debt, so the lender can still repossess the car if payments stop. If something unexpected, such as losing work, serious illness or a relationship breakdown, makes the payments hard, ask for hardship help early. Consumer Protection says you apply in writing, say whether you want more time to pay, a payment holiday or both, explain what happened and attach proof. There are time limits, for example you generally need to be less than two months behind. The lender must decide within 20 working days, cannot charge a fee to consider it and must pause repossession until it decides.

If the lender does not respond fairly, you can complain to its dispute resolution scheme. A free financial mentor, reached through MoneyTalks on 0800 345 123, can talk to lenders for you and check for unfair treatment.

How Fair Finance helps

You answer a few questions once and we run one soft credit check. It does not affect your score and other lenders do not see it. We then refer you to lenders on our panel who consider people with insolvency in their history. A hard check only happens later, if you choose to go ahead with a specific lender. If the honest advice is to wait until a proposal finishes, we will say so. Start with the eligibility check or see how it works.

General information only, not financial or legal advice.

Sources

• Insolvency and Trustee Service: debt management plans and proposals
• Insolvency and Trustee Service: personal insolvency options
• Insolvency and Trustee Service: how insolvency affects you
• Consumer Protection: bankruptcy and insolvency
• Community Law: a creditor’s proposal
• Privacy Commissioner: Credit Reporting Privacy Code 2020
• Good Shepherd NZ: Good Loans
• MoneyTalks
• Consumer Protection: Payment problems