A guide to bankruptcy in Singapore (and 3 lessons to learn)

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When I was growing up, my dad and uncle would often joke about having to declare bankruptcy and putting their children up for sale as child servants to some mean, wealthy stranger.

The only life lesson (if you could call it that) for me? An irrational fear of the B-word – bankruptcy. 

But as I found out, bankruptcy — although tedious and should be avoided at all costs — is at its core a procedure that is designed to help you get out from under overwhelming debt. 

Here’s what you need to know about bankruptcy in Singapore, and some life lessons we can learn from it (not the ones by my dad and uncle).

Bankruptcy, not to be taken lightly

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First, a caveat. Bankruptcy is not something to be taken lightly, as there are restrictions and consequences that come with being bankrupt.

For starters, someone who is declared bankrupt will have their assets sold and the proceeds put into a bankruptcy estate, which will be managed by a court-appointed party known as an Official Assignee (OA). 

Also, if they are gainfully employed, bankrupts are expected to make monthly contributions to their bankruptcy estate, in an attempt to repay part of or all of their debt. 

Additionally, persons under bankruptcy will face several restrictions, such as not being able to:

  • Borrow more than $500 without informing the lender of your bankrupt status
  • Leave Singapore without permission
  • Bring legal proceedings against others (except for personal injury or divorce)
  • Manage a business or act as a director of a company
  • Be appointed as trustee or personal representative 

As you can imagine, these restrictions, while carried out in a legal manner, can nonetheless interfere with your quality of life, causing a long period of stress and unhappiness. 

Bankruptcy should be avoided if at all possible, and only be applied as a last-ditch measure. 

What is bankruptcy and how do you get declared bankrupt?

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Anyone who owes more than $15,000* and is unable to pay back the debt can file for bankruptcy. They are also a potential candidate for having bankruptcy proceedings filed against them by their creditors.

(Note*: Due to Covid-19, this limit has been raised to $60,000 until October 19, 2020, presumably to head off an expected rise in the number of bankruptcy charges brought against debtors.)

That said, bankruptcy is a procedure that can be invoked by either the debtor or creditor. This is usually done when it is highly unlikely that the debt will be repaid, and negotiations in private to make alternative repayment have failed. 

In particular, creditors can only bring bankruptcy charges against a debtor if:

  • The debtor has failed to comply with a statutory demand to pay the debt for at least 21 days (increased to at least six months until 19 October 2020 due to Covid-19)
  • The debtor failed to comply with a court issued execution to pay the debt
  • The debtor has fled the country to avoid repayment
  • The Official Assignee (OA) certifies that the debtor is unable to pay the debt

This is in line with it being a tool of last resort, so, no, most of us needn’t worry about being made bankrupt just because our credit card balances are creeping upwards. 

Bankruptcy is designed to protect the debtor

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The popular image of a bankrupt is someone who has been stripped bare of every single possession but their clothes, doomed to slog away for the rest of their lives shackled to a never-ending mountain of debt. 

But the truth is a lot less dramatic. And in bankruptcy’s case, sensible. 

You see, the purpose of bankruptcy is to help settle debts.

Since a candidate for bankruptcy is someone who is unable to pay back their debts under the original lending terms, the way out would be to alter the terms to make them more favourable.

Bankruptcy achieves this in three ways:

  1. It stops your debts from accumulating, by stopping any further interest charges on your principal sum owed. This effectively freezes your debt. 
  2. It provides you with an alternative payment plan, one that is perhaps more suitable to your present circumstances. This means payments are likely to be more manageable, compared to before when you were likely struggling to keep up with high interest charges.
  3. It protects you from being sued for your debts. Bankrupts are protected by law from legal proceedings brought by creditors to recover debts incurred before bankruptcy. 

Bankruptcy will also protect some assets 

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Earlier on, we stated that bankruptcy will result in having your assets (i.e., anything of value that belongs to you, or gifts given to you) seized and sold. 

But there are some assets which are protected by law which you will be allowed to keep, such as:

  • Property held by you as a trustee for someone else
  • Your HDB flat (if at least one flat owner is a Singapore citizen)
  • Money in your CPF account
  • Life insurance policies held in express trust for your spouse or children
  • Any items/equipment required for the personal use in your employment, business or vocation
  • Equipment/furniture required for your family’s needs
  • The remainder of your monthly income after deduction of the monthly contribution 
  • Any annual bonus or annual wage supplement paid as part of your income

These items listed above will be excluded from the bankruptcy estate, and thus protected from distribution to your creditors. 

What other ways can bankruptcy affect you?

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Although bankruptcy can protect you from further escalation by your creditors and offer you a basic, if restricted, lifestyle, there are far-reaching consequences to consider. 

1. Bankruptcy will be made public

Once declared bankrupt, your name will be entered into Singapore’s bankruptcy register, which can be freely searched by anyone, including potential employers, clients and the public. This can affect your career path. 

2. A declared bankrupt can continue to work, but not in high positions

Contrary to what some might believe, persons under bankruptcy can continue to take up a job. However, part of their wages will be deducted and paid to their bankruptcy estate.

Also, they are not allowed to be involved in the management of a business or act as a director of a company, unless prior permission has been granted by the court or the OA. 

3. Credit score will be affected 

Bankruptcy will cause your credit score to take a hit, and credit bureaus continue to report default in payment for three years from the date of settlement, and bankruptcy data for five years from the date of discharge.

This will severely affect your ability to apply for loans, credit cards and mortgages even in the future. 

Bankruptcy sounds horrible, is there help to manage being bankrupt?

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Once an official Bankruptcy Order has been filed, you will be appointed an Official Assignee (OA) whose job is to help you manage your affairs.

They are also charged with the duty to distribute your assets and repayments to creditors as fairly as possible. 

Specifically, the OA’s duties are three-fold:

  • To oversee the bankruptcy estate, by planning the monthly contributions to be paid, by selling your liquid assets to pay off the creditors and importantly, to determine your target contribution (the amount you need to pay back, determined at the start of your bankruptcy after taking into consideration your circumstances).  
  • To manage your affairs, such as assessing your applications to travel overseas or to defend or commence a court action
  • To assist you in obtaining a discharge from bankruptcy, which the OA can recommend in the face of satisfactory conduct and adherence to monthly contributions.

How do I get out of bankruptcy?

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Thankfully, bankruptcy needn’t be a long-lasting ordeal.

Under the right circumstances, you can be discharged from bankruptcy, or even have it annulled altogether. 

Here’s the difference between discharge and annulment:

  • Annulment means being treated as never having been declared bankrupt at all. Your name will also be immediately removed from the bankruptcy register, which, remember, is publicly searchable. 
  • Discharge from bankruptcy means retaining your previous status as a bankrupt. Removal from the bankruptcy record will only take place after a stipulated time period. 

Clearly, you’ll want to work towards an annulment to limit the effect of bankruptcy on your future affairs. 

See the following table for the four methods for getting out of bankruptcy, their conditions, and their results.

Method Condition Result
Full repayment of outstanding debt Pay off your outstanding debt to your creditors in full. This includes fees incurred in filing for bankruptcy.  Certificate of Annulment issued. Name removed from bankruptcy register. 
Making a debt repayment proposal a) Proposal accepted by at least 50per cent of creditors holding at least 75per cent of the debt’s value. b) Proposal accepted by 100per cent of creditors a) Certificate of Discharge issued. Name removed from bankruptcy register after five years and full repayment of debt as per proposal. (If debt not paid up in full, name will remain on register.) b) Certificate of Annulment issued, and name removed from register.However, if debt isn’t paid up in full, OA can apply to revoke annulment. 
Apply to the Court for Order of Discharge Make an application to the Court for an Order of Discharge, with accompanying affidavit. Court will rule on application.  If Court rules in favour: Discharged from bankruptcy, and name removed from register after five years, and full payment of debt.If Court rules against: No discharge granted 
Discharge by Certificate from OA OA is satisfied that you have fully paid your target contribution (or extenuating circumstances prevent you from doing so) -and-A validity period has passed (3 to 7 years for first-time bankrupts, 5 to 9 years for repeat bankrupts). Receive Certificate of Discharge from OA, and have name removed from register five years after full repayment of target contribution.If target contribution not fully paid, can still be discharged, but name remains on register. 

Lessons learned from the threat of bankruptcy 

Truthfully, bankruptcy sounds like an ordeal and a half.

But most of us needn’t go that far. Here are some lessons to take away from learning so much about bankruptcy. 

Lesson 1: Control your debts before they get out of hand

Having debt is not the problem, but not controlling them is.

Bankruptcy only rears its head when you are proven unable to pay off your debt.

Hence, if you should take on debt, be sure to track your debt and their interest charges carefully and make sure you are able to keep up with payments.

One important way to control your debt is by reducing their interest charges with the help of a personal loan, balance transfer or a debt consolidation plan.

Another way is to limit how much you borrow each time.

Lesson 2: Commit to paying off your debt lest they come back to haunt you

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The ill effects of bankruptcy can linger on long after, affecting your ability to get loans, mortgages and credit cards in future.

Be sure to commit to paying off your debt to the best of your ability, so as to limit the duration of the negative effects as much as possible. 

Lesson 3: This, too, shall pass

No matter how horrible bankruptcy is, like all things, it, too, shall pass.

Remember, bankruptcy may be austere, but it offers a lifeline in a virtually hopeless situation.

Do your best to endure, and you’ll one day be free of your bankrupt status. 

This article was first published in SingSaver.com.sg.