If you find yourself in a situation where you cannot pay your debt and are declared bankrupt, you are not alone. Many people in Singapore face bankruptcy every year. Last year saw a decline in the number of bankruptcy applications from 3,473 in 2019 to 2,833 in 2020. The decline, however, could be due to Covid-19 relief measures and government support schemes. Senior economists expect numbers to climb again as temporary relief measures and government support are wound down.
Although bankruptcy has significant consequences, it is not the end of your financial life. Bankruptcy law in Singapore aims to balance your liabilities towards your creditors and allowing you to recover from bankruptcy. It also provides for the bankrupt person to have an acceptable standard of living during declared bankruptcy.
This article will explain what bankruptcy means, what happens when you are declared bankrupt, and how you can get out of bankruptcy. Understanding the law empowers you to navigate your bankruptcy much better.
What is Bankruptcy?
In Singapore, the bankruptcy regime is governed by the Insolvency, Restructuring and Dissolution Act (IRDA) 2018, which came into effect on 30 July 2020. It replaced the old Bankruptcy Act that dealt with personal bankruptcy and insolvency. The IRDA defines bankrupt as an individual debtor who has been adjudged bankrupt by a bankruptcy order. Bankruptcy is, therefore, a legal status referring to a situation where a person cannot repay their debt when it becomes due, and a court declares the person bankrupt.
What happens when you cannot repay your debt?
If your creditors think that you will not repay your debts to them, they can file an application for you to be declared bankrupt. You may also file to have yourself declared bankrupt if you cannot repay your debts of at least S$15,000 that are immediately payable and enforceable in Singapore. (The Covid-19 (Temporary Measures) Act 2020 extended the minimum debt to S$60,000).
What happens to your assets when you are declared bankrupt?
In short, your assets are sold, and the proceeds are placed into a bankruptcy estate. The court will appoint an Official Assignee (OA) to control your bankruptcy estate. (In certain circumstances, the court may appoint a person other than the OA to be the trustee of the bankrupt estate). The OA is an officer of the court. The OA will explain your obligations as a bankrupt and manage and oversee your bankrupt estate. Assets in the bankruptcy estate are used to pay off debts to creditors. Anything of value that you own can fall in the bankruptcy estate, including any gifts received before your discharge from bankruptcy.
Section 329 of the Act protects certain assets from bankruptcy and division amongst creditors. These assets cannot be included in the bankruptcy estate. Protected assets include:
- Items required for use in your employment, for example, tools, books, or vehicles needed for employment.
- Furniture, bedding, clothing, and equipment needed to satisfy the basic needs of the bankrupt and the bankrupt’s family.
- Property excluded under other laws, for example, the bankrupt’s HDB flat, if at least one owner is a Singapore citizen.
- What is left after the bankrupt’s monthly contribution is deducted from the bankrupt’s salary.
Obligations Once Declared Bankrupt
Once declared bankrupt, you must report to the OA within 21 days. You must submit a statement of affairs setting out your assets and liabilities. You must declare all your assets, tax records, insurance policies, investments, title deeds, etc, to the OA.
You must attend meetings with your creditors.
If you are gainfully employed, you must make monthly contributions to the bankruptcy estate. The OA will determine how much you must contribute every month based on the target contribution (determined by the OA). The proceeds from the sale of your assets cannot be used to meet the target contribution. Once you have paid off the target contribution, you may be discharged from bankruptcy (if at least three years have passed since you were declared bankrupt).
You must keep the OA up to date with your address and contact details.
Are there things that a bankrupt is disqualified from doing?
Yes, whilst you are a declared bankrupt, you may not:
- Leave Singapore without the OA’s permission.
- Be appointed as a trustee or personal representative without the court’s permission.
- Commence legal proceedings against anyone without the OA’s approval, except for divorce or personal injury proceedings.
- Borrow more than S$500 without informing the lender that you are a bankrupt.
- Act as a director of a company or manage a business without the permission of the OA or the High Court.
- Do business without informing clients or partners that you are bankrupt.
Once declared bankrupt, your name will appear on the Singapore bankruptcy register. Anyone can search the registry with payment of a fee. It is possible to have your name removed from the registry after a specific time, depending on how you get out of bankruptcy.
Are there any benefits in filing for bankruptcy?
Yes, if you file for bankruptcy voluntarily:
- Any existing legal action against the bankrupt is stayed and may not proceed.
- In effect, your debts are frozen and cannot accumulate. Creditors are not allowed to charge any more interest.
- Existing creditors cannot commence with any legal action against you to recover the debt.
- All the bankrupt’s assets will now vest in the OA and be orderly disposed of at market value.
- The OA will put a suitable monthly repayment scheme in place.
Will your family be liable for any of your debts?
Your family will only be liable if they are co-borrowers or guarantors for your loans. If your home mortgage is in both you and your spouse’s name, the spouse will be liable as well. The same applies if you took out a hire-purchase loan in both your names to buy a car.
What does it mean to be in the green or red zone?
Bankrupts in Singapore are categorised as being in the red or green zone. Depending on the classification, the bankrupt can be afforded or deprived of certain privileges.
If you conduct yourself well during your bankruptcy, you will be in the green zone. You are likely to be granted permission to travel and other privileges. Good behaviour will include being gainfully employed, filing everything on time, and making regular payments, etc.
If, however, you fail to file a statement of affairs on time, or fail to declare all your assets, or fail to make payments, you are likely to be placed in the red zone. You will not get certain privileges like travelling or be allowed to manage a business.
Being in the green zone will help when you are assessed for discharge from bankruptcy.
How do you get out of bankruptcy?
There are generally four ways to get out of bankruptcy.
1. Full repayment of debt
Full repayment is usually the quickest way out of bankruptcy. Once you’ve paid off all your debt and the bankruptcy costs, the court can issue a certificate of annulment. The Bankruptcy Order is annulled, and your name will be removed from the bankruptcy register.
2. Offering a settlement to the creditors
You can propose a settlement offer to your creditors to repay your debts. If at least 50% of the creditors, who hold at least 75% in debt value, accept your proposal, you may be discharged from bankruptcy. The OA will issue a Certificate of Discharge. Your name will remain on the bankruptcy register for another five years.
If all the creditors unanimously accept your proposal, a Certificate of Annulment can be issued. Your name can be removed from the register.
Take note. If you fail to repay the debt according to the settlement offer, either certificate can be revoked.
3. Discharge by the High Court
You may apply to the High Court for a discharge. The court will consider various factors such as the amount of the debt, the cause of your bankruptcy, your conduct during bankruptcy, etc. If the court grants a discharge order, your name will be removed from the register after five years and where your debts are fully paid.
4. Discharge by the Official Assignee (OA)
The OA may issue a Certificate of Discharge after a specific time has elapsed, if you’ve paid off your target contribution. If you haven’t paid off your target debt, but there are mitigating circumstances, the OA may also issue the certificate. The bankrupt cannot apply for a Certificate of Discharge. It is up to the OA whether to issue a certificate or not.
Although you probably didn’t plan on being declared bankrupt when you planned your financial future, it happens. Bankruptcy can be overwhelming, but it is not the end of your financial future. Bankruptcy procedures can help you repay your debt and stabilise your finances so that you can carry on with your everyday life.