When a person cannot keep up with their bills and debts, the first thing that might come to their mind is bankruptcy. Bankruptcy is a legal status declared upon a person when they are unable to pay off their debts. If a person owes someone $15,000 which is payable immediately and is unable to repay, such person is declared bankrupt. Bankruptcy can be an overwhelming situation but is certainly not the end of one’s financial life, and understanding the laws and procedures surrounding the bankruptcy can help one navigate through the process better.
The Aim is to Aid the Debtor
The first question which might come to mind is why should one file for bankruptcy. There are certain benefits if a person files for bankruptcy voluntarily. The bankruptcy regime in Singapore is aimed to help both the debtor and the creditor stabilize their finances. The benefits for self bankruptcy application in Singapore are:
1) No more accumulation of debt: After an order is issued by the High Court declaring a person as bankrupt, no more interest can be charged on the principal amount owed. Thus the debt gets frozen at a certain amount.
2) Lower monthly repayments: Once declared bankrupt, the creditor cannot ask for unreasonable monthly repayments. Instead, the Official Assignee (OA) takes into consideration the requirements of the debtor and his family and decides a suitable amount that has to be contributed monthly. The monthly payments become much more reasonable and within the means of the debtor.
3) No more legal proceedings: Once the High Court has declared a person bankrupt, creditors are barred from suing that person for recovering debts incurred before bankruptcy against the debtor.
Can You File for Bankruptcy?
The debtor or the creditor can file for bankruptcy to declare the debtor as bankrupt. For the High Court to declare someone as bankrupt, certain criteria must be fulfilled. The debtor must owe an amount of at least $15,000 to the creditor, which is due immediately, and he is unable to repay. Other than this, section 310(1) of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), states that the debtor must fall into either one of these categories.
1) The debtor is domiciled in Singapore.
2) The debtor has property in Singapore.
3) The debtor has had a place of residence in Singapore for at least one year.
4) The debtor has been an ordinary resident in Singapore for at least one year.
5) The debtor has carried on business in Singapore for at least one year.
How to File for Bankruptcy?
Step 1: The first step is to obtain and complete the following documents.
i) Debtor’s Bankruptcy Application
ii) Statement of Affairs (declaring assets, liabilities, current employment status, monthly expenses, etc.)
iii) Affidavit in Support of Debtor’s Bankruptcy Application
iv) Affidavit verifying Statement of Affairs
The Affidavits should only be signed in the presence of a Commissioner for Oaths (CFO). Except for the Statement of Affairs, which can be handwritten, the rest of the documents must be typed.
Step 2: The next step is to deposit $1,850 with the Official Assignee by proceeding to the Insolvency Office managed by the Ministry of Law. One can also email the Ministry of Law’s Finance Department at [email protected] to request the payment instructions. An official receipt will be received within 4 working days after payment.
Step 3: The next step is to submit the completed documents and the receipt to the Supreme Court’s Legal Registry. This is located at Level 2 of the Supreme Court. Then one should make the payment for the prescribed stamp fees or the Commissioner of Oath fees and affirm the Affidavits at Level 3M of the Supreme Court.
Step 4: Visit the LawNet Service Bureau to file all the documents through eLitigation after paying the prescribed fee. This is located at Level 1 of the Supreme Court. The LawNet Service Bureau will give a date for the collection of the documents. Upon collection, the date and time for the bankruptcy hearing will be printed on the application.
Step 5: The person will have to attend the hearing on the given date and time which is generally scheduled within 6 weeks from the date of filing of the application. If unable to attend the hearing, one must immediately write to the Registrar of the Supreme Court for a later hearing date stating the reasons for such request.
Your Assets after being Declared Bankrupt
The person declared bankrupt, will be required to head down to the Official Assignee’s (OA) Office within 21 days of the Bankruptcy Order. They will need to submit a Statement of Affairs to the OA. The assets of the bankrupt person will form a part of the bankruptcy estate and the OA will oversee and manage the bankruptcy estate. Anything of value owned at the date and after the Bankruptcy Order will fall under the bankruptcy estate. Any gifts received after the Order may also fall into the bankruptcy estate. The OA might sell off the liquid assets and determine the target payment. If the bankrupt person is employed, then a monthly contribution must be made to the bankruptcy estate. The OA will decide this monthly payment after taking into consideration the requirements of the bankrupt person and his/her family. Once the target contribution is paid off, the bankrupt can be discharged from bankruptcy.
Section 329 of the IRDA protects certain assets from division amongst creditors. Such assets are also not included in the bankruptcy estate. These protected assets include:
i) Property held by the bankrupt person as a trustee.
ii) The HDB Flat if at least one of the owners is a Singapore Citizen.
iii) Monies in the bankrupt person’s CPF account.
iv) Life insurance policies held on express trust for the spouse or child(ren).
v) Items or types of equipment required for employment or business like tools, books, or vehicles.
vi) Equipment or furniture for the requirement of the family.
vii) The remaining monthly income after contributing to the bankruptcy estate.
viii) Any annual bonus or wage paid as a supplement to the bankrupt’s income.
Legal Status after Declaring Bankrupt
The person’s legal status would be bankrupt and his name would be listed in Singapore’s Bankruptcy Register. With the payment of a fee, this register can be searched by current and future employers and also the general public. The name can be removed from the register after a certain period after getting out of bankruptcy.
Obligations of a Bankrupt Person
1) Full and frank disclosure of all assets to the OA.
2) Disclosure of all property disposed of before the bankruptcy or disposed of by the way of gifts or settlements within 5 years before the bankruptcy to the OA.
3) Contributing monthly payments to the bankruptcy estate.
4) Informing the OA continuously about the place of residence and contact details.
5) Attending meetings with the OA or with the creditors unless prevented by sufficient cause.
Restrictions of a Bankrupt Person
1) Unless the Court approves, one cannot be appointed as a trustee or personal representative of any trust or estate.
2) Except on the grounds of personal injury or divorce, one cannot commence legal proceedings against any person without the OA’s permission.
3) Leave Singapore without the OA’s permission.
4) Without informing the lender about the bankruptcy status, one cannot borrow more than $500.
5) Without the permission of the High Court or the OA, one cannot act as the director or take part in the management of a business.
6) One cannot do any business without informing the clients about one’s bankruptcy status.
Categorization of Bankrupts
Certain privileges may be given to the bankrupt depending on the category they fall under. There are two categories – Green Zone and Red Zone. The bankrupt person may fall under either of these categories depending upon several factors, for example, filing the Statement of Affairs timely, the employment status of the bankrupt, timely payment of installments, full disclosure of overseas assets, nature of cooperation with the OA, etc.
Green Zone – Satisfactory conduct during bankruptcy places one in the green zone. Privileges such as travel permit to another country for more than a month and being assessed as suitable for discharge from bankruptcy are enjoyed by people in the green zone.
Red Zone – Unsatisfactory conduct during bankruptcy places one in the red zone. They are withheld from traveling overseas, not permitted to manage a business or act as a director, and also assessed as unsuitable for discharge from bankruptcy.
Liability of Family
A bankrupt person’s family will only be liable for the debts which they have co-borrowed or acted as guarantors.
Employment once Declared Bankrupt
A bankrupt person can continue working normally even after being declared bankrupt by the Court.
Divorce after Bankruptcy
A bankrupt person or their spouse can commence divorce proceedings even after being declared bankrupt.
Options that can be Availed other than Bankruptcy
1) Debt Repayment Scheme (DRS): If the debt owed is not more than $150,000 and the debtor has a regular income, the Court may refer the debtor to DRS upon the bankruptcy application. The person would not be declared bankrupt if this option is availed.
2) Voluntary Arrangement (VA): This option is essentially a formal arrangement between the debtor and the creditors to repay the debt under the supervision of a nominee who can be a registered public accountant, a lawyer, or a person gazetted by the Ministry of Law who has consented to such appointment. This option has more advantages since it is less restrictive. One can apply to the Court for an interim order to suspend all bankruptcy proceedings if availing this option.
3) Debt Consolidation Plan (DCP): If a person owes a debt to multiple financial institutions, they can undergo a DCP that combines all the unsecured debt across multiple financial institutions into a single debt with a single financial institution.
Methods to get out of Bankruptcy
1) By paying off all outstanding debt: The bankruptcy order can be annulled by full repayment of debt.
2) Making a proposal to creditors for repayment: The bankruptcy order can be annulled or discharged if all the creditors accept the proposal or at least 50% of the creditors holding 75% in value accept the proposal respectively.
3) Applying to the Court for an order of discharge: One can apply to the High Court for an order of discharge from bankruptcy.
4) By paying off the target contribution: The OA may issue a Certificate of Discharge once the target contribution has been fully paid or has not been paid due to extenuating circumstances.
Few Cases concerning Bankruptcy under IRDA
1) Seto Wei Meng & Another v Foo Chee Boon Edward  SGHCR 5
The defendant was a doctor and was ordered by the Court to pay an amount, after calculation, for negligence on his side. The plaintiff sent a notice to the defendant to pay a specific amount after calculating the award with pre-judgment and post-judgment interests. On non-payment of the sum, the plaintiff started a bankruptcy proceeding against the defendant for the Court to declare him bankrupt. The defendant filed for a civil appeal against the amount awarded by the Court and simultaneously filed another application for the stay of the bankruptcy proceeding. The Court concluded that a stay in a bankruptcy proceeding cannot be granted just because of a civil appeal pending. The defendant was declared bankrupt by the Court and an Official Assignee was appointed.
2) Re Then Feng  SGHCR 1
In this case, the applicant commenced a bankruptcy proceeding against himself. Several creditors applied to intervene to oppose the applicant’s attempt to bankrupt himself. The Court found that the applicant’s assets were more than his liabilities and he could pay off the debts he owed. The applicant asked for a later date to re-file his Statement of Affairs which the court granted. The applicant failed to file his SOA even on a later date. The Court stated that the SOA should have been filed correctly on the first application itself and dismissed the bankruptcy application thus not declaring the applicant bankrupt.