Personal Finance

The no asset procedure: Relief for those who are overwhelmed by debt


The No Asset Procedure is an alternative to bankruptcy that allows a debtor who has no assets to pay their debts, to have them discharged. PHOTO | SHUTTERSTOCK

Jane (not her real name) is a single mother with two school-going children. She recently lost her job and has been unable to find new employment. She has used up all her savings to pay school fees.

Unfortunately, she has accumulated a large amount of debt, mostly from a failed business venture and credit card debt.

She also has an outstanding medical bill, unpaid rent, and a Higher Education Loans Board (Helb) loan.

The only assets that she owns are personal items like clothes and the furniture in her one-room house. She is going through an incredibly difficult time, feeling overwhelmed by the constant barrage of phone calls and the distressing threats of legal action from her creditors. Jane’s story is a common one in Kenya.

Many people find themselves struggling to repay their debts due to job loss, medical emergencies, or other unforeseen circumstances. However, the law does provide a way out through the No Asset Procedure (NAP).

The NAP is an alternative to bankruptcy under the Insolvency Act 2015, that allows a debtor who has no assets to pay their debts, to have them discharged.

The NAP is a less expensive and time-consuming option than filing for bankruptcy. After the NAP order is given, the debtor is provided with a clean lease of life with all debts existing before the procedure is nullified. This means that the debtor is no longer legally liable for their debts, and they can start fresh.

The NAP has its origins from biblical times, as recorded in the Old Testament, there was a practice of forgiving debts every seven years.

When the Jews settled in Israel, they implemented a system of counting seven-year cycles. At the end of each cycle was a Sabbatical year called Shemittah, meaning “release.”

The observance of Shemittah had various aspects. For instance, during the Shemittah year, the people of Israel were forbidden from cultivating their fields, and certain types of slaves were granted their freedom.

 In simple terms, the Shemittah year prevented lenders from collecting outstanding debts owed by their fellow citizens.

After completing seven Shemittah cycles, the 50th year was considered the Jubilee. The Jubilee took the concept of Shemittah even further by cancelling all debts.

Giving debtors a new lease of life. It should be noted however, that the NAP as provided for under Sec 343 of the Insolvency Act 2015, does not apply automatically to everyone unable to pay their debts.

They must first meet the following criteria:

To qualify for the NAP, the debt should not be less than Sh100,000 and should not exceed Sh4 million.

The debtor must have no realisable assets (this excludes necessary personal belongings and tools of trade).

Application process: Individuals can apply for the NAP through the Official Receiver. The application involves disclosing financial information, debts, and assets.

Minimal asset realisation: Unlike traditional bankruptcy, there is no formal process for asset realisation or distribution to creditors in the NAP since the debtor has no realisable assets.

In general, any assets the individual possesses are retained, provided they fall within the exempted categories.

Debt discharge: Once the NAP is approved, the individual is granted a discharge from their debts after a specific period, usually one year. After the discharge, creditors are prohibited from pursuing the discharged debts.

Once a person is admitted under NAP, they cannot take up new debts during the period of admission (12 months.)

The NAP only applies once in a debtor’s lifetime.

Similar simplified insolvency procedures with different names and variations exist in other jurisdictions to address the needs of individuals with low levels of debt and minimal assets.

The specific details and requirements of such procedures may vary depending on the country or jurisdiction in question.

In Australia, a similar procedure called “debt agreement” applies. It is a legally binding agreement between a debtor and their creditors to repay debts based on what the debtor can afford.

It provides a formal alternative to bankruptcy and can be a viable option for individuals with limited assets and income.

In the UK, a comparable procedure exists, known as a “Debt Relief Order”. It is a form of insolvency designed for individuals with low income, few assets, and relatively low levels of debt.

It allows for the discharge of qualifying debts after a specific period, typically 12 months.

On the other hand, in the US “Chapter 7 bankruptcy” provides for the liquidation of a debtor’s non-exempt assets to repay creditors.

However, individuals with few assets and low income may qualify for a “no-asset” Chapter 7 bankruptcy, where the debtor does not have non-exempt assets available for distribution among creditors.

In summary, the NAP aims to offer a simplified and cost-effective solution for individuals with limited means to deal with their debts.

By streamlining the process and eliminating the need for extensive asset realisation, the NAP provides a more accessible insolvency option for those in financial distress without significant assets.

Mr Wakimani is an advocate of the High Court of Kenya and a senior lecturer at the Kenya School of Law.

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