Most people won’t think of declaring bankruptcy as a scenario when planning their financial future, but life and finances are not always predictable. Some may even consider declaring bankruptcy as an easy way out of a financial situation, but it is certainly not. Bankruptcy is not to be taken lightly, but it is also not doomsday for you or your family. In Singapore, the bankruptcy regime strikes a balance between the strict legal obligations of parties, and allowing bankrupts to have an acceptable standard of living , and allowing people to recover from business or commercial failures. Bankruptcy proceedings in Singapore also contain mechanisms aimed to protect both debtors and creditors and to stabilise finances on both sides.
Facing bankruptcy can be overwhelming but understanding the law around bankruptcy will help you to navigate the process much better. In this article, we will discuss personal bankruptcy in Singapore, and address some of the concerns you may have.
Before we look at bankruptcy in Singapore, we should note that the old Bankruptcy Act (that dealt with personal bankruptcy and insolvency) was replaced by the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) that came into effect on 30 July 2020. This act replaced the Companies Act that dealt with corporate insolvency as well as the Bankruptcy Act.
What is bankruptcy?
Bankruptcy is a legal status, which is mostly the result of cashflow issues. A person is may become bankrupt when they are unable to repay their liabilities when those liabilities fall due. For example, you may have a $1,000,000 mortgage which requires you to pay $5000 each month. As long as you are able to make the monthly mortgage payment, you are in no danger of bankruptcy, even if you will not be able to repay the $1,000,000 at one go. However, if you owe $20,000, which is payable immediately, you can become bankrupt even if you have a factor worth $5,000,000 but are unable to pay the $20,000.
Why file for bankruptcy?
Filing for bankruptcy voluntarily has certain benefits:
- No legal action (whether commencement or enforcement) may be commenced against the bankrupt
- Existing legal actions are immediately stayed and may not proceed
- All of the bankrupt’s property vest in the Official Assignee or liquidator, such than an orderly disposal of the bankrupt’s property can take place and avoid “fire sale” prices.
Requirements to file for bankruptcy
The High Court can only grant a bankruptcy order if the debtor and the debt fulfils certain criteria. Where a creditor files for bankruptcy there are additional requirements that must be fulfilled.
The debtor must have a debt that is due and owing in excess of S$15,000 that he is unable to repay.
Whether the debtor files or a creditor files for your bankruptcy, under section 310(1) of the IRDA, the debtor must fall into one of the following categories.
- Be domiciled in Singapore;
- Has property in Singapore;
- Has carried on business in Singapore for at least one year;
- Has a place of residence in Singapore for at least one year;
- Has ordinarily been resident in Singapore for at least one year.
When can a debtor file for voluntary bankruptcy?
A debtor can file for voluntary bankruptcy in Singapore if they owe and cannot repay debts of a liquidated sum of at least S$15,000 that are immediately payable and enforceable in Singapore.
When can a creditor file for bankruptcy?
A creditor can file for bankruptcy when the debtor owes such a debt of S$15,000; and
- The debtor has failed to comply with a statutory demand to pay the debt for at least 21 days or hasn’t applied to court to have the demand set aside within 14 days;
Filing for bankruptcy
In Singapore, all bankruptcy applications are filed in the High Court.
A debtor who wishes to file for bankruptcy must complete and submit the following forms:
- A debtor’s bankruptcy application;
- An affidavit in support of the debtor’s bankruptcy application;
- A statement of affairs including information on your assets, liabilities, monthly expenses, employment status, etc;
- An affidavit to verify the statement of affairs.
When a creditor files for bankruptcy, a creditor’s bankruptcy application, and an affidavit in support of the application must be filed along with all other relevant documents.
The applicant must pay a deposit of S$1,850 to the Official Assignee who will administer the debtor’s estate.
The completed documents and the receipt of payment must be submitted to the Supreme Court’s legal registry and the affidavits must be affirmed before a commissioner of oaths.
A date for the hearing will be set and you must attend the hearing.
The Debt Repayment Scheme (DRS)?
If the debtor’s debts do not exceed S$150,000, it may also be possible that the Official Assignee will allow the debtor to go under the DRS instead of proceeding into bankruptcy. The key difference is that under the DRS:
- The debtor does not become bankrupt
- The debtor normally has to repay the total owed sum
- The maximum instalment period is 5 years.
If the Official Assignee assesses that the debtor is not suitable for DRS, then unless the debtor is able to raise sufficient money or enter into an arrangement with their creditors, he will be adjudged bankrupt by the Court.
Find more information on the Debt Recovery Scheme here.
What happens after being declared bankrupt?
After being adjudged bankrupt, administration of the bankrupt’s affairs is handled by the Official Assignee. An official assignee is a public servant and an officer of the court.
After the bankruptcy order is made, the Official Assignee will contact the debtor in writing and the debtor must attend a meeting with the Official Assignee for a briefing on the way forward.
The bankrupt’s assets will form part of your bankruptcy estate and the Official Assignee will control and manage the estate. Anything of value that you own at the date of the order or even after the making of the Order can fall into your bankruptcy estate. Any gifts that you receive before your discharge from bankruptcy may also fall in the bankruptcy estate.
The Official Assignee may sell your liquid assets and determine your target payment. If you are employed, you must make monthly contributions to your bankruptcy estate. The Official Assignee will assist with planning your monthly contribution plan and managing your affairs whilst bankrupt. Creditors can submit proof of their claims and receive payments from your estate.
Some assets enjoy bankruptcy protection and are excluded from the bankruptcy estate. Assets not available for distribution to creditors include:
- Property held by the bankrupt on trust of another person;
- Any tools, vehicles, books or equipment needed by the bankrupt for personal use in the bankrupt’s employment or business;
- Clothing, bedding, furniture, household equipment and provisions necessary for basic domestic needs of the bankrupt and their families;
- Any property specifically excluded by any law, for example, your Housing and Development Board (HDB) flat (if at least one owner is a Singapore citizen), or money in your Central Provident Fund (CPF) account;
- The remainder of the bankrupt’s monthly income, after deducting the monthly contribution;
- Any annual bonus or annual wage supplement paid to the bankrupt as part of their income.
Will your family be liable for your debts?
Generally, no. Your family can only be liable for your debts if they are co-borrowers or guarantors for your loans. If your home mortgage is in both you and your spouse’s name, then your spouse will also be liable. If you and your spouse live in an HDB flat, and one of you is a Singapore citizen, they cannot take legal action against you for the outstanding payments.
What is your position once declared bankrupt?
Bankruptcy is not the end of your life. You can continue to work and earn money, however, there are restrictions and responsibilities, including the following:
- You will have to disclose all your assets, insurance policies, tax records, title deeds and so on to the Official Assignee, even those that you disposed of, or gifted to someone within the five years preceding bankruptcy;
- You must keep the Official Assignee up to date with your contact details and where you live;
- Attend meetings with your creditors;
- Make monthly contributions to your bankruptcy estate.
- Be appointed as a trustee or a personal representative without court approval;
- Leave Singapore without the Official Assignee’s permission;
- Commence legal proceedings against another person without the Official Assignee’s permission, except for divorce or personal injury proceedings;
- Borrow more than $500 without telling the lender that you are a bankrupt;
- Act as the director of a company or take part in the management of a business without the Official Assignee’s or the High Court’s permission;
- Do business without telling clients or partners that you are a bankrupt.
Bankruptcy categories – red zone or green 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 the bankrupt, for example, fails to file a statement of affairs on time, or failed to declare all assets, is unemployed without a good reason, or fails to make instalment payments, they will be placed in the red zone. This means they will not get certain privileges like getting permission to travel overseas or manage a business.
If the bankrupt is gainfully employed, files everything on time, makes regular instalment payments and is generally cooperative, they will be placed in the green zone, and are more likely to be afforded privileges.
How do you get out of bankruptcy?
There are generally four methods to get discharged from bankruptcy in Singapore.
(1) Paying off all the outstanding debts and bankruptcy costs.
This is the quickest way to get out of bankruptcy and move on with your life. Once this is done, the court or the Official Assignee can issue a certificate of annulment, which means your name will immediately be removed from the bankruptcy register. The bankruptcy order is annulled and it will be as if you were never declared bankrupt.
(2) Offering a settlement to repay all creditors
You can propose a settlement to repay all creditors. If the proposal is accepted by at least 50% of the creditors, who hold at least 75% in value, the Official Assignee can issue a certificate of discharge. You will be discharged from bankruptcy, but your name will remain on the bankruptcy register for another 5 years and will only be removed if you repaid your debts.
If all the creditors unanimously accept the proposal, a certificate of annulment can be issued which will allow your name to be removed from the bankruptcy register.
If the bankrupt fails to repay the debt according to the proposal, either certificates can be revoked and you will remain bankrupt.
(3) Applying to the High Court for a discharge
If the court grants a discharge order, your name will be removed from the register 5 years after the date of the discharge and when the debts are fully repaid. When considering your discharge application, the court will consider various factors such as the amount of the debt, the cause of your bankruptcy, and your conduct during bankruptcy, etc.
If there are “special facts” present, for example, you were previously declared bankrupt, or you committed any bankruptcy offences, or you contributed towards your bankruptcy by living extravagantly, the court is unlikely to grant a discharge order. Even if the court grants an order, it will be subject to conditions.
Section 394(5) of the new Insolvency, Restructuring and Dissolution Act sets out a full list of such “special facts”.
(4) Discharge by certificate of the official assignee
The Official Assignee can grant a certificate of discharge if the bankrupt has either:
- Fully paid the target contribution, or there are extenuating circumstances why the bankrupt is unable to do so; or
- An applicable validity period has passed from the date of submission of your statement of affairs. The validity period depends on whether you are a first-time bankrupt, whether you were able to repay your target contribution and whether there is sufficient creditor agreement. For example, if you are a first-time bankrupt, and you fully paid your target contribution, the applicable validity period is 3 years from the date that you submitted your statement of affairs if there is no creditor objection. (5 years if there is creditor objection).
The bankrupt cannot apply for this method, it is up to the official assignee.
The Insolvency, Restructuring and Dissolution Act came into effect at a time when many people and businesses are suffering from the effects of the Covid-19 pandemic. Although the Singapore government has temporarily increased the monetary threshold for when a person can file for bankruptcy, an increase in bankruptcy applications can be expected in the aftermath of the global pandemic.
There are alternatives to declaring bankruptcy such as the debt repayment scheme, voluntary arrangements and debt consolidation plans. Understanding your options will assist greatly in managing your affairs in financially difficult times.
Do you need further help?
If you require any further support on this topic, please don’t hesitate to get in touch.