Here's how many New Zealanders are going bankrupt

New Zealanders are going bankrupt at a much lower rate than seen in the past - and it may be because of KiwiSaver.

Data shows that personal bankruptcy numbers have fallen from more than 3000 a year in 2017/18, including no asset procedures and debt repayment orders, to fewer than 1500 in the 2024/2025 year.

At the same time, the number of KiwiSaver withdrawals for hardship reasons has reached record levels.

Jake Lilley, a spokesperson for financial mentor network Fincap, said that was probably no coincidence.

"Based on what financial mentors have observed, many will often prefer KiwiSaver withdrawal instead of a no asset procedure or other form of insolvency," Lilley said.

A no asset procedure can be used to clear unsecured debt up to $50,000 and is designed for people who do not have realisable assets.

Lilley said people were opting for a withdrawal even when an insolvency process could be better in the long term.

"There is likely a taboo around insolvency out there which is a hangover from a couple of centuries where debtors faced awful treatment," he said.

"We also continue to see headlines around bankruptcies associated with potentially unethical conduct rather than stories about how an insolvency process can bring great weight off the shoulders of people with very stuck financial situations who are skipping meals.

"There are also risks that those who go through insolvency might lose easy access to some essentials.

"However, the Electricity Authority has just started a piece of work on access to energy contracts which could help, and we have seen some good work from some of the banks in recent years to ensure people continue to have access to banking through insolvency."

Simplicity chief economist Shamubeel Eaqub said it was not a bad outcome if KiwiSaver was allowing people to avoid worse situations.

"I mean, it's their money," Eaqub said. "Most of our applications are to do with job loss, significant health issues."

Lilley said a recent survey showed 40 percent of financial mentors' time was spent responding to KiwiSaver hardship withdrawals.

Christine Liggins, of DebtFix, said people could only use KiwiSaver for arrears, not to clear debt that isn't overdue.

But she said the stats may indicate people are realising there are more options and working harder to come to debt solution arrangements with creditors.

Under responsible lending laws, lenders have an obligation to consider requests from borrowers in unforeseen hardship. That can include things like spreading a loan over a longer period to reduce repayments, or a temporary break from payments.

"There's still 450,000 people behind in payments every month, so there are still a lot of people struggling," Liggins said .

"We say, 'Yes, you can get your KiwiSaver out for this, that and the other, but actually a debt solution would also help'."

She said it could be the case that bankruptcy numbers still increase over time. Inland Revenue has been taking action against businesses that owe tax debt, and she said that could have a flow-on effect in future years.

"Basically what you've got is a company director or a small company going into liquidation and then as a knock-on effect declaring bankruptcy later."

Liggins said she did not think the bankruptcy process is fit-for-purpose any more.

"I think it should be abolished because we could just put a debt solution in place [where] you either pay zero or you pay anything between zero and 100 percent. You don't have to be labelled bankruptcy, seven years on.

"You could murder someone and be out quicker than that."

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