Declaring bankruptcy is not a scenario many people would have considered when you plan your finances. Because few people see it coming, the people who become bankrupts rarely know what they’re subjected to and lose hope or do not know how to get out of it.
In Singapore, individuals or creditors can file bankruptcy applications if a person is unable to repay debts of at least $15,000.
In 2019, there were 3,473 bankruptcy applications and a further 1,645 bankruptcy orders. From the start of 2020 to April, there have already been 1,438 bankruptcy applications and 397 bankruptcy orders made.
Many of us may look at bankrupts as immoral or people who have taken the easy path out of their financial situations. This is untrue as going down this route often mean facing obstacles to making even simple choices in their daily lives, beyond just living with this stigma.
Covid-19 (temporary measures) Act (relief measures for bankrupts)
On April 20, 2020, the Government passed a new law to provide temporary relief to debtors from creditors for up to 6 months from April 20, 2020. In cases where the statutory demand is served on or after April 20, 2020, the statutory period for debtors to respond to the demands will also be extended from 21 days to 6 months.
For both situations, creditors are prohibited from commencing bankruptcy proceedings for the recovery of debts, while the monetary threshold for a creditor to commence bankruptcy proceedings against a debtor has been increased by the Act from $15,000 to $60,000.
These temporary measures are scheduled to end on Sept 30, 2020, but could be extended/amended subsequently by the government.
The process of filing a bankruptcy application
As with all legal issues, the process of filing for bankruptcy will cost money and can be a very tedious affair. Both the person in debt or the person who is owed money can file a bankruptcy application – debtor application or creditor application.
If you find yourself mired in debt, and do not have means to repay it or are able to arrange a settlement with a creditor, you can file for your own bankruptcy. To do this, you will have to fill in numerous forms – and can visit the Supreme Court’s website to find out more.
Alternatively, your creditors, who you owe money to, can seek to file a bankruptcy application against you. However, before doing so, creditors will have to issue a Statutory Demand, officially demanding payment from you.
If you are unable to make payment within the stipulated deadline, they will then proceed to file the application and a court hearing date will be set. If you are unable to pay the debt for the court hearing date, you may be declared a bankrupt.
In cases where a debtor has less than $100,000 in unsecured debts, you may be able to avoid bankruptcy by entering into a Debt Repayment Scheme.
Administered by an Official Assignee, you can work out a method to repay your debt within a fixed period of time (of no more than five years). After which, you will be released from your debts and can begin a fresh start.
What happens after you are declared a bankrupt
If officially declared a bankrupt, the Official Assignee will be tasked to sort out your affairs. Note that a bankruptcy deposit of $1,850 for will have to be made for this – paid by you or the creditor depending on who filed the bankruptcy application.
There are also other fees to take into account, such as document filing and legal fees.
You have to submit a statement of affairs, including your assets, liabilities and creditors, as well as commit to a reasonable debt repayment plan to pay off debtors. You will need to surrender your assets to your Official Assignee, which will be sold and proceeds will be distributed to your creditors.
You also need to comply with laws under the Bankruptcy Act, cooperate with the trustee to submit relevant documents and stick to the repayment plan to pay a Target Contribution, which will be determined by your Official Assignee.
As a bankrupt, you will also be limited in certain ways. This includes having difficulties looking for jobs in public sectors and certain jobs in the finance industry, and any potential employer will have access to your public profile as a bankrupt.
You will also face restrictions managing a business and becoming the director of a company without the Official Assignee’s or court’s approval.
You will not be able to sell, transfer or give away any property as the decision will lie with your Official Assignee. You cannot continue or start any legal actions without your Official Assignee’s permission.
You will not be allowed to leave the country without permission from your Official Assignee; you will find it tough to obtain credit of more than $1,000; and your credit worthiness will also be affected.
Basically, your life will be quite restricted, and there will be an officer looking closely at your expenses, especially anything deemed luxurious.
This includes being able to take taxi rides over public transport, eating at fancy restaurants over hawker centres, owning a high-end mobile phone over a generic one.
How your CPF, home, insurance policies and ability to work are affected
Even though you will be financially constrained, you will be able to have a roof over your head, keep your safety net – CPF – and any tools or assets needed to continue working – tools or any apparatus you require in your profession.
Your CPF is meant for your retirement and will be kept safe from any legal liabilities you may have. This is regardless of whether it is in your Ordinary Account (OA), Special Account (SA), Medisave Account (MA) or within in a CPF Investment Scheme (IS).
Even if you are an undischarged bankrupt when you turn 55, you will be able to withdrawal money from your CPF if you are eligible. However, this withdrawal will not be protected from claims by your Official Assignee, and may go towards paying your debts.
If you pass away while still being an undischarged bankrupt, your CPF monies will be distributed according to your CPF Nomination or Singapore’s intestacy laws.
Your CPF monies will be protected from your legal liabilities, however, any CPF monies placed in investments, in your CPFIS accounts, will be part of your estate and transferred to your Official Assignee for distribution.
You should note that if you are a bankrupt receiving a relative’s CPF funds, this sum of money will be transferred to your Official Assignee to pay off your debts.
Your HDB home is also protected from your Official Assignee. You will also be able to continue making mortgage payments via your CPF funds. In addition, you may purchase an HDB even if you are a bankrupt, and you can use your CPF monies for this.
This is important because you may be required to sell your private property to repay your debts. However, you will not be able to purchase a private property.
Apart from any life insurance policies where your spouse or children are the beneficiaries, any insurance policies you own will form part of your assets and may be sold by your Official Assignee to repay your debts.
You will also be allowed to keep a portion of your income to support your family and continue paying for your home and any tax obligations. If you require work tools for to do your job, they will be protected from your Official Assignee.
Other assets that are protected include necessary household furniture and personal effects, private properties that you hold in trust for someone else and compensation awarded in respect of personal injuries or wrongful acts.
Start working towards getting discharged as a bankrupt
There are several ways to get discharged as a bankrupt.
For first time bankrupts, you can be discharged within three to five years if you have paid your Target Contribution in full and no creditors object to your discharge, within five to seven years if you have paid your Target Contribution in full and the court rejects any creditors’ objections to your discharge.
In these cases, your name will be removed from public records after five years from your discharge.
If you have not paid the Target Contribution in full but the court rejects any creditors’ objections to the discharge, you may be discharged in seven years but you name will remain on public records permanently.
Don’t be disheartened – bankruptcy is not the end. To ensure you are able to start afresh, you should target being discharged as a bankrupt.
You will have certain responsibilities, including paying your Target Contribution and adhering to restrictive laws, and should keep to them to hasten your exit from bankruptcy.
This article was first published in Dollars and Sense.