As of September 2018, there are almost 17,000 undischarged bankrupts in Singapore. The good news is that the number of bankruptcy cases has dropped by more than 20 percent since the 1990s, and the number is on the steady decline.
With better financial literacy (I mean, read our blog if you need tips), we can only hope that the number of undischarged bankrupts will continue on this downward trajectory.
But if you (touch wood) find yourself in the situation where you need to file for bankruptcy, here’s all you need to know about bankruptcy in Singapore.
What is the meaning of bankruptcy?
Bankruptcy is when someone owes more money than they can pay.
According to the Bankruptcy and Insolvency Act, one can file for bankruptcy as long as he/she owes and cannot repay debts of greater than $15,000. Filing can be voluntary and it is also possible for banks to start proceedings to declare someone as bankrupt if it’s obvious that he/she is in this state.
After assessment by the courts, a person can be declared legally bankrupt within 4 to 6 weeks of application by the High Court.
In short, if finance is a sport, the bankrupt’s field position is Left-Right-Out: bankrupts are no longer in the cycle of exchange.
While it is inconceivable how anyone can file for bankruptcy voluntarily, there is good reason to do so. Filing for bankruptcy voluntarily stops interests from snowballing on debts, and they’ll be easier to repay under a debt repayment scheme.
Although it is a scary situation to be in, it’s a common misconception that bankruptcy is “the end”. Rather, it’s a “reset”, where someone has to rebuild their finances from scratch. Although it’s rare for former bankrupts to become rich (I’ll explain why later), but it is possible for them to at least recover.
Once you are declared a bankrupt, the below consequences start taking effect.
Most assets will get seized
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.
- Tools of trade that 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.
Having to declare every expense on a 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, otherwise known as Official Assignee, will do periodic checks.
A bankrupt needs 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. For instance, it’s quite 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).
Hard to get loans due to 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 bankruptcy end?
If a bankrupt is employed, files his statement of affairs on time and is regular with installment debt payments, he may get a discharge from the courts after 3 years, if liabilities are less than $500,000.
Otherwise, he may remain bankrupt until all his creditors are paid off, he manages to appeal to the court, or get a certificate from his Official Assignee.
However, 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 to take steps to repay and recover.
Do you have questions about bankruptcy? Comment and let us know!
Main image credit: atomicity via Flickr