What does it mean to declare bankruptcy in Singapore?

The easy availability of credit in Singapore often puts individuals in a situation where they are unable to repay their debts on time. In most instances, the delay is remedied soon enough. You may have to pay late fees or overdue interest along with the loan instalment that you had missed or the credit card bill that you had neglected to pay.

But some people get overwhelmed by the debts that they have taken and find that they simply cannot keep up with repayments. This usually happens when a person incurs large losses in a business venture or in the event of a loss of employment.

In such a situation, it is advisable to talk to your creditors and try and work out a payment plan that is acceptable to them and which you are capable of meeting. If this does not work out, there is a possibility of being declared bankrupt.

An individual’s legal status can be changed to that of a bankrupt if debts of a value exceeding S$15,000 are not repaid. A person should try and avoid bankruptcy as far as possible as it carries a social stigma and also affects an individual’s ability to get credit for many years into the future.

 

Some basics about bankruptcy

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What is the procedure for an individual to be declared bankrupt? A bankruptcy application can be made to the Court by either the debtor or a creditor.

If the application is accepted, the Court issues a Bankruptcy Order and usually appoints an Official Assignee to handle the bankrupt individual’s financial affairs. The Official Assignee and the officers of the Insolvency Office sell off the bankrupt’s assets and repay the creditors who have registered their claims.

The Official Assignee plays a crucial role in the bankruptcy proceedings and is responsible for investigating the conduct of the person who has been declared bankrupt. Several restrictions are imposed:

• A bankrupt individual cannot sell or transfer any property as this will be sold and the proceeds used to pay off the creditors.

• The individual who has been declared bankrupt cannot travel out of Singapore without taking the Official Assignee’s prior permission.

• If the bankrupt person wants to start or even continue any legal action in the court, approval is required.

• An individual who is bankrupt is required to disclose this fact to any bank or financial institution or person who has been approached for a credit facility.

The Official Assignee determines a “Target Contribution” that the bankrupt is required to make to the bankruptcy estate. Monthly sums are paid by the bankrupt towards the “Target Contribution.” Creditors are paid from the amount that is collected in this manner.

When the “Target Contribution” is completely paid, the bankrupt can be discharged. When the discharge process is completed, the person’s legal status is no longer that of a bankrupt.

 

Does a bankrupt person have to surrender every asset?

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Most of the assets that are owned by a bankrupt individual will be sold and used to pay off the creditors. However, certain assets are exempt from this rule:

• An HDB flat that is owned by a Singapore citizen will not be compulsorily sold to pay off a bankrupt person’s debt. However, the flat can be sold to pay off the financial institution that has advanced money to buy the flat.

• Amounts lying in the CPF account cannot be used by the Official Assignee to pay off a bankrupt individual’s debt.

• Certain types of life insurance policies are also exempt.

 

How long does a person carry the legal status of bankruptcy?

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Fortunately, the laws in Singapore allow a person to be discharged from bankruptcy in a certain time frame.

If the “Target Contribution” is paid in full, a person who has been declared bankrupt for the first time can be eligible for a discharge after a period of three years if more than 50% of the creditors do not have any objection.

Even if the “Target Contribution” has not been paid in full, the bankrupt individual will be eligible for discharge after a period of seven years. For repeat bankruptcies, the timelines are extended by an additional two years.

A bankrupt individual who meets the “Target Contribution” will no longer appear on the public record after five years from the date of discharge. But if the “Target Contribution” has not been met, the person’s name will remain on the public record permanently.

 

Bankruptcy should be a last resort

At the end of January 2017, the number of undischarged insolvent persons in Singapore was 18,135. In the first month of the year alone, 214 applications were made to the court for bankruptcy.

While this route can give a person some relief in the amount to be repaid to creditors, the disadvantages far outweigh the benefits. A bankrupt individual’s name remains on the public record for several years. It will become very difficult to get a loan if a person has been bankrupt in the past.

Although a bankrupt individual is allowed to work, part of the salary will be diverted to pay off earlier debts. For most people who find that their level of debt is unmanageable, it is preferable to arrive at a mutually acceptable repayment program with their creditors. Bankruptcy should be an option only if all other alternatives fail.

(By Ravinder Kapur)

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