As of 2011, there are almost 25,000 un-discharged bankrupts in Singapore. The good news is the number of bankruptcy cases has dropped, by more than 20 percent since the ’90s. And now that MoneySmart is up, no one will ever go bankrupt again. I mean, have you been reading my articles? My advice is so good, I discharge a bankrupt every time I twitch. But just in case I’m exaggerating a bit, here’s an article that explains what bankruptcy entails:
What is Bankruptcy?
Bankruptcy is when someone owes more money than they can pay. If finance is a sport, the bankrupt’s field position is Left-Right-Out: bankrupts are no longer in the cycle of exchange. However, it’s a common misconception that bankruptcy is “the end”.
It’s more appropriate to think of bankruptcy as a “reset” button, where someone has to rebuild their finances from scratch. While it’s rare for former bankrupts to ever get rich (I’ll explain later), it’s quite possible for them to at least recover.
How Does Someone Become Bankrupt?
It’s possible to file for bankruptcy so long as you (1) owe at least $10,000 in total, and (2) have absolutely no way to repay the amount. These conditions will be assessed by the courts, and a person can be a declared bankrupt within 4 – 6 weeks of the application. It’s also possible for the bank to start proceedings to declare someone bankrupt, if it’s obvious they’re in this state.
Once that happens, the consequences roll in:
Seizure of Assets
Like a pack of rabid scavengers, creditors get to seize and divide the assets of the bankrupt. They pretty much browse through the bankrupt’s belongings, and cherry pick anything they can use or auction. However, there are some things they aren’t allowed to take:
- Necessities for the bankrupts and their families, which can include their HDB flat. However, if a flat has been refinanced, there may be provision for a foreclosure.
- The bankrupts’ tools of trade. This is anything the bankrupts need to continue doing their jobs. If the bankrupt is a mechanic, for example, his tools are off-limits.
- Anything the bankrupts may be holding in trust for someone else. So if a bankrupt is holding a house in trust for a nephew, that house can’t be taken.
Statement of Affairs
Bankrupts can carry on with work, but with one exception: a portion of their income is shared by creditors. For the remainder that they keep, they need to provide a statement of affairs. An officer appointed by the court will do periodic checks.
In effect, the bankrupts need to justify every little expense. So if they used a cab instead of the bus, there had better be an earth-shaking reason (i.e. my wife was pregnant and headed for the hospital). Receipts for everything have to kept and tallied, and life just gets inconvenient.
Employers and the Public are Informed
Bankruptcy is advertised, so anyone checking the bankrupt’s records will know about it. Employers will be informed; while it usually doesn’t result in termination, it can ruin career prospects. It’s unlikely that a bankrupt is going to land a managerial position.
For anyone in the finance industry (such as a banker), bankruptcy is even worse. Most of the time, it results in termination as well. Finding another job will be difficult: bankruptcy is a resume stain.
No Overseas Travel
Bankrupts need to inform the courts if they want to travel overseas. Apart from work reasons, this is seldom approved. A bankrupt who goes abroad without permission will be jailed upon return, for up to two years.
There’s also a fine of up to $10,000 (Yeah, that makes sense).
Impaired Credit Rating
Even after bankrupts are discharged, their credit ratings may remain poor. It can take up to seven years for a bankrupt to rebuild a credit rating, and there is no guarantee of this.
I mentioned before that, while bankrupts can recover, they seldom get rich. This is one of the main reasons: with a terrible credit score, it’s hard to start any kind of business or private investment. A former bankrupt will find it hard to even get a car or housing loan, let alone find funding.
When Does it End?
If a bankrupt owes less than $100,000, the court may discharge him after three years. This is assuming none of the creditors object. Otherwise, a person remains bankrupt until all their creditors are paid off.
Most people don’t consider being discharged to be the “end” of bankruptcy. What usually follows a discharge is an extensive credit repair process, under the guidance of Credit Counselling Singapore.
Ultimately, bankruptcy is a painful, but sometimes necessary step. The important thing is not to see it as a terminal condition, if and when it happens. But keep up with MoneySmart articles, and I’m sure this won’t ever happen to you.
Do you have questions about bankruptcy? Comment and let us know!