Personal Finance

A sudden loss of income from being unemployed, huge medical expenses from serious diseases, an excess use of credit, and even failed business ventures are some of the likely situations that may lead you to bankruptcy. Bankruptcy should always be the last resort in an attempt to eliminate debt. Regardless of the severity of the situation, filing for bankruptcy is a decision that can entail both positive and negative outcomes. Although it may have never occurred to you that you will be affected one day, it is still essential for you to learn about it in case you have to deal with it in the future – whether personally, for a friend or a family member.  

For those in face of making the decision, bankruptcy may probably be a favourable option if you are reaching the stage of retirement, or when you have a couple of dependents to ease your burden. Based on your situation, however, these factors do not automatically necessitate bankruptcy.

It is likely that most people would have some misconceptions about bankruptcy in Singapore. Hence, before you make a decision, these are some key points you should probably take note of.

What is Bankruptcy?

Bankruptcy is a legal status of an individual who is unable to repay debts equating to or greater than $10,000, and it is declared by the High Court. When you’re bankrupt, it means you can no longer pay your debts to your creditors, and hence, have become insolvent.

(Note: The bankruptcy debt threshold will soon be raised to $15,000 due to the submission of the Bankruptcy (Amendment) Bill last year, in 2015. This is revised in an effort to encourage debtors and creditors to resolve debts that fall below this threshold, without resorting to the formal bankruptcy process.)

Filing for Bankruptcy in Singapore

A debtor may either personally file for bankruptcy or choose to leave it to his/her creditor to file for them. For the bankruptcy application to be recognised, the debtor must meet certain conditions, and these include:

  • Residing (owning a property) in Singapore;
  • Exceed the bankruptcy debt threshold (stated above);
  • Resided in or operated a business in Singapore within a year of the application; and
  • Unable to repay the debt

Certain actions by the debtor can secure the Bankruptcy Order for the creditor, and these include:

  • Debtor failing to fulfill a court order or comply with a Statutory Demand to pay the debt;
  • Debtor fleeing the country (avoid payment); and
  • Official assignee certifying that the debtor is unable to pay the debt

Upon meeting these conditions, the High Court can then grant the application and begin the process of resolving outstanding payments.

After Declaration

The administrative tasks are tedious, as you will be required to attend a briefing at the Official Assignee’s office with regard to your responsibilities as a bankrupt. One of the responsibilities will call for you to submit your Statement of Affairs to the Official Assignee within 21 days from the date of the Bankruptcy Order.

If you are a partner in a company that has been made bankrupt, you will have to submit a Statement of Affairs stating your personal assets and liabilities, and another stating the company’s assets and liabilities (unless submitted by another partner of the company). 

Failure to comply, without reasonable excuse, or submitting a false statement (one that is misleading or have omitted relevant parts), is a punishable offence with a fine below $10,000 or an imprisonment for a term below two years, or both.

Loss of Assets and Liquidation

Your assets, which include anything of value belonging to you at the date of the Bankruptcy order being made and thereafter, as well as gifts received by you, will have to be handed over to the Official Assignee. The Official Assignee will then begin selling of these assets and possessions for the purpose of repayments to the creditor(s), of which a fair division if there is more than one creditor, with exception to certain creditors that have precedence over others (as outlined in the Bankruptcy Acts). This is done so as to resolve as much of the payable debt as possible through the proceeds of the sale.

While this pretty much takes care much your accumulated debts, it does not alleviate child support, current taxes or court fines.

Assets Protected from Creditors

Not everything in your possession will be seized by the Official Assignee. These are some of the assets that are protected from your creditors:

  •   Private properties held by you on trust for any other person;
  •   HDB flat (at least one of the owners is a Singaporean); and
  •   Monetary sum accumulated in your Central Provident Fund (CPF)

Overseas Travel

Contrary to popular belief, a bankrupt is allowed to travel overseas, but only upon obtaining the approval from the Official Assignee. An online application should be made at least two weeks before the stipulated departure date, accompanied by any relevant documents required by the Official Assignee. Any attempt made to leave Singapore without permission will result in being stopped by the Controller of immigration, and a confiscation of passport by the Immigration and Checkpoints Authority.

Other Negative Impact 

Bankruptcy is a black mark on your court record for up to seven years in Singapore after you have filed and paid your debts. This essentially ruins your Credit Score, and in turn has dire effects on future applications for a credit loan. On top of that, it may have adverse repercussions that may affect your livelihood if the bankruptcy procedures have not been handled properly. Such may include having past creditors approaching you to claim their debts even after you have been discharged for repayment of debts. 

Discharge or Resolution of Status

The discharge from the bankruptcy status is not an automatic process. However, one may resolve it through the following ways:

  •   Applying for annulment of the Bankruptcy Order by full settlement, Offer of Composition, or a Scheme of Arrangement;
  •   Discharge by the High Court (for debts exceeding $500,000); or
  •   Discharge by Certificate of the Official Assignee (for debts below $500,000), of which the circumstances will be reviewed based on certain factors on a case-by-case basis

Filing for bankruptcy can be a mouthful, and it is important for you to consider the pros and cons before you decide to do so. Besides the inconveniences it would bring, there is also the challenge of having to deal with emotions such as anger, guilt and shame. Regardless, bankruptcy is not the end of the world; it is merely an obstacle to overcome, and tide through with humility.