Bankruptcy is a legal status entered into in Singapore when someone cannot pay their debts and the total amount owed exceeds S$15,000. A person can choose to file for bankruptcy, or one or more of their creditors may file.
There can be some advantages in a debtor filing for bankruptcy; interest stops accumulating, so the total amount owed is frozen, plus a creditor cannot sue them once a bankruptcy order is in place.
The process of declaring someone bankrupt is well-defined in Singapore, and once debts have been repaid either partially or in full, it’s possible to lift the status of bankruptcy and have a debtor’s name removed from the bankruptcy register.
Why choose to file for bankruptcy?
Choosing to declare yourself bankrupt is seen by most people as a last resort, but it does have some advantages.
The debt stops growing
Once a bankruptcy order has been made, a creditor cannot continue to charge interest for the money owed, so the debt freezes at that point. Many people struggle with the snowball effect of the interest accumulating on the debt, which means the total amount owed keeps bobbing ever further out of reach.
Lower monthly repayments
Once a person has been officially declared bankrupt, the Official Assignee will decide on a suitable monthly contribution to be split amongst the creditors. This sum takes account of what that person will need to live on to provide for themselves and their family. Usually, this is a lower monthly amount than the accumulated payments and interest that the debtor was paying previously.
Protection from court action
Once the bankruptcy order is made, creditors cannot commence legal proceedings against that person.
The two ways of declaring bankruptcy in Singapore
If someone owes money in Singapore and cannot repay it and has debts of at least S$15,000, they can choose to file for bankruptcy. The other possible scenario is that one of their creditors can file to declare them bankrupt if they don’t believe the money will be repaid, and if they have previously struggled to reach an agreement with the debtor.
What are the requirements to file for bankruptcy in Singapore?
There are specific prerequisites before a debtor or one of their creditors can file for bankruptcy. Two elements must be passed:
- The debt is at least S$15,000
- One of the conditions below must be met:
- The debtor is unable to pay the debt
- The debtor must be domiciled in Singapore
- The debtor must have property in Singapore
- The debtor must have been ordinarily resident in Singapore for at least twelve months
- The debtor has a place of residence in Singapore
- The debtor has carried on business in Singapore for at least twelve months
If one of the creditors is filing for bankruptcy as opposed to the debtor himself, they must first have issued a statutory demand to the debtor to clear the debt, and there must be a time interval of at least 21 days.
Alternatively, the creditor must show the debtor has fled the country to avoid repaying the money or has failed to comply with a court order to pay the debt. If the Official Assignee certifies the debtor cannot pay the debt, this also satisfies the required test that the debtor cannot repay the money owed.
What happens next?
If a debtor is declared bankrupt, any assets are sold, and the money is put into a bankruptcy estate. Certain assets, like HDB flats, are protected from this process.
The bankruptcy estate is usually managed by the Official Assignee (OA), an officer appointed by the court to administer the estate and distribute the proceeds to the debtor’s creditors. The other option is that the estate is managed by a private trustee, usually a lawyer or an accountant.
The OA plans the monthly contributions the debtor will make to the bankruptcy estate, determines the target contribution, and sells off liquid assets to create funds to repay the creditors.
Whilst the OA controls the bankrupt’s assets, not everything can be included in the bankruptcy estate as certain things are protected. Creditors must provide proof of their debts so they can receive payments from the bankruptcy estate.
The OA is not just there to administer the estate, but also assists the bankrupt in reaching the point of obtaining a discharge from bankruptcy.
The process of declaring bankruptcy in Singapore
The first stage is completing the relevant forms and submitting an affidavit in support of the debtor’s bankruptcy application. A statement of affairs is also required, containing information about the debtor’s employment status, monthly expenses, assets, and liabilities.
The application requires a bankruptcy deposit of S$1,850, payable to the OA by the person filing the application. A creditor can recover this amount if there is enough money in the bankruptcy estate. If the bankruptcy application is unsuccessful because it is dismissed or withdrawn, the OA will refund the money to the applicant, less S$50 administration costs.
The application with the completed documents and fee is made to the Supreme Court’s legal registry. The affidavit verifying statement of affairs and the affidavit in support of the application are affirmed before a Commissioner for Oaths in the Supreme Court, who signs and stamps the documents.
The court will allocate a date and time for the bankruptcy hearing, which the applicant must attend. The date can be altered, but a request to do this must be made in writing, stating the reasons for the change.
The bankruptcy register
Bankrupts are listed in a bankruptcy register in Singapore. This register is freely available to the public on payment of a fee. Bankrupts can have their name removed from the register after a specific time.
Final thoughts on declaring bankruptcy
The key point for anyone struggling with debt repayments is to take advice at an early stage. Making temporary repayment arrangements with creditors can be possible, which staves off the risk of court action or bankruptcy. However, sometimes bankruptcy can be the best option.
Frequently asked questions
What happens if I am declared bankrupt, but I have a job?
If you are declared bankrupt and have a job, you must make a monthly contribution paid into the bankruptcy estate.
At the point of bankruptcy, the Official Assignee will have decided upon a target contribution. This figure is set apart from assets which have been sold and the proceeds paid into the bankruptcy estate. If the target contribution is paid off, you can be discharged from bankruptcy, provided three years have passed since you were declared bankrupt, and you are a first-time bankrupt. Even if you fail to pay off the target contribution, it’s still possible to have the bankruptcy discharged after seven years.
What assets cannot be sold, and put into a bankruptcy estate?
Some assets are protected and cannot be sold. These include life insurance policies held on trust for a spouse or children, an HDB flat if at least one of the owners is a Singaporean citizen, equipment or furniture required for your family’s needs, and any items used in the debtor’s employment, trade, or business.
Once the OA has determined the monthly contribution, the remainder of the debtor’s income cannot be allocated to the bankruptcy estate.
When should someone choose to file for bankruptcy?
If the likelihood of being able to repay the debts in full is relatively low and other avenues have been exhausted, such as trying to negotiate new payment terms with creditors, then opting to file for bankruptcy can be a preferable option. It avoids the risk of being taken to court by one or more creditors, and the monthly repayments will probably be lower than they are currently.
Will my family have to help pay off the debts?
Family members are only involved in the debt repayment if they are named on any debts, such as a mortgage or a joint hire purchase agreement. If a family member is a guarantor for a loan, they can be made bankrupt if they cannot repay it.
What should I do about my HDB flat?
An HDB flat is a protected asset if at least one owner is a Singaporean citizen. Bankrupts should inform the HDB about their situation, and they will help draw up a payment plan, usually with lower instalments, to assist in the current financial situation.