In 2021, there were around 3100 applications for bankruptcy in Singapore. The number had increased compared to the previous year, due to the adverse economic impact of the COVID-19 pandemic. However, the good news is that the number of bankruptcy cases has dropped by more than 20 percent since the 1990s, and the number has been steadily declining since.
Declaring bankruptcy is often seen as a last resort. In fact, in many Asian countries, parents would often joke to their children about how they would sell them off in order to save themselves from going bankrupt.
However, bankruptcy should not be as taboo as it deserves to be. In reality, it actually is a financially sound move to repay your debts, in order to save yourself from a lifetime of financial pains.
What Does It Mean for Someone to Declare Bankrupt?
Simply put, bankruptcy is when someone owes more money than they can pay.
According to the Bankruptcy Act (Chapter 20), one can file for bankruptcy as long as he/she owes and cannot repay debts of greater than $15,000. However, bankruptcy filing can be involuntary as it is also possible for creditors to start proceedings against the borrower, if the borrower is unable to pay off their debts.
In 2020, due to Covid-19, the threshold for taking action against debtors has been temporarily raised. The debt threshold for individual bankruptcy has been raised from $15,000 to $60,000. Individuals also have 6 months, rather than just 21 days, to respond to creditor demands before being presumed unable to pay off their debts.
However, do take note these measures ended on 19 October 2020, and are no longer in effect.
After assessment by the High Court, a person can be declared legally bankrupt within 4 to 6 weeks of application, be it from themselves or from their creditors.
Even though many people see bankruptcy as the end, it is not. Instead, it is a ‘reset’, where debtors are protected to rebuild their finances from scratch.
Bankruptcy achieves this in three ways:
- It effectively freezes your debts, by pausing any further interest charges on your principal sum.
- It provides you with an alternative payment plan. This means payments are likely to be more manageable, unlike before when you were likely struggling to keep up with high interest rate payments.
- It protects you from being sued for your debts. Bankrupts are protected by law from legal prosecution by creditors to recover debts incurred.
How Will Bankruptcy Affect You?
Finances Controlled on a Tight Leash
A portion of a bankrupt’s income will be deducted and contributed to their bankruptcy estate. The accumulated contributions in one’s bankruptcy estate will be distributed to their creditors upon discharge from bankruptcy.
For the remainder of their wage, a strict record will need to be made under a statement of affairs. An officer appointed by the court, otherwise known as Official Assignee (OA), will do periodic checks.
This means that every single expense will require documentation, and for those deemed unnecessary or excessive, strong justification will be needed. For instance, if a bankrupt were to pay for a taxi instead of taking the bus, there ought to be an extremely good reason why they would do that - perhaps an emergency medical situation might fit the bill.
By documentation, this also means receipts for everything purchased have to be kept and tallied, which is downright inconvenient.
Additionally, bankrupts must seek permission from their Official Assignee or High Court to either manage a business or hold a directorship position of a company.
Public Disclosure of Your Bankruptcy Status
Upon declaring bankruptcy, a bankrupt’s name will be entered into Singapore’s bankruptcy register, which is open to the public to freely search. This might include one’s potential employers, clients and family members.
If one is already employed, their employers will be informed. While it usually will not result in termination, it can possibly ruin career prospects. For instance, it is quite unlikely that a company will promote a bankrupt to a managerial position. On the other hand, finding another job will be difficult, as bankruptcy will be a huge stain on our resume.
All in all, your career prospects will definitely be negatively affected.
No Overseas Travel
Bankrupts will need to gain approval from their Official Assignee if they want to travel overseas. Apart from employment reasons, this is rarely approved.
A bankrupt who goes abroad without permission might be stopped by the Controller of Immigration from leaving Singapore and their passport impounded by the Immigration & Checkpoints Authority (ICA).
Affected Credit Score
Bankruptcy will cause one’s credit score to take a nosedive. This will severely affect one’s ability to apply for loans, credit cards and mortgages even when the bankrupt has been discharged years ago.
With a terrible credit score, it is difficult to start any kind of business without being able to qualify for a business loan. It can take many years, if not decades, for a bankrupt to slowly rebuild their credit rating, and even so, there is no guarantee that they will be able to reach their rating before bankruptcy.
So what are the different tiers of credit score risk grades assigned to individuals? Our guide here goes over this in detail.
Getting out of Bankruptcy
Thankfully, bankruptcy is not an unremovable mark on your record. Under the right circumstances, you can be discharged from bankruptcy, or even have it annulled altogether.
A discharge from bankruptcy means retaining your previous status as a bankrupt. Removal from the bankruptcy record will only take place after five years have passed, and all debts have been paid.
Meanwhile, an annulment means being treated as never having been declared bankrupt at all. Your name will also be removed from the bankruptcy register, which is perhaps the most important part of an annulment, and will contribute massively to getting your life back on track.
You can get yourself out of bankruptcy in three ways:
|Certificate of Annulment will be issued|
|Apply to the High Court to grant an Order of Discharge. The High Court will take into consideration the views of Official Assignee and creditors, as well as other factors.||If approved: Order of Discharge will be issued.|
|The Official Assignee may discharge a bankrupt after consideration of many factors, provided that: ||Order of Discharge will be issued.|
However, most people do not consider being discharged to be the end of bankruptcy. What usually follows a discharge or annulment is an extensive bankruptcy rehabilitation process to repair your credit, under the guidance of Credit Counselling Singapore.
Is Declaring Bankruptcy Worth It to Escape From Debts?
Declaring bankruptcy grants you immunity from being sued for not repaying your debts, stops debt collection actions against you, as well as pausing the interest rate on your debts. As a result, many people might see bankruptcy as an attractive solution to their mounting payments.
The answer is largely, no.
Other than the massive inconveniences that the status of bankruptcy brings about like restricting and tracking your spending, it also places large restrictions over your salary and travel. Your assets (anything that of value that belongs to you) will be seized and sold, even if they might hold sentimental value to you.
However, some assets are protected by law from seizure, and they include:
- Your HDB flat
- Money in your CPF account
- Life insurance policies held in trust for your spouse or children
- Equipment or tools needed for your employment
- Furniture required for your family’s day-to-day needs
So unless you are willing to give up anything else except for the above listed, then bankruptcy is not the solution just to escape from debts. Furthermore, after declaring bankruptcy, your credit score as well as public reputation will be severely damaged, leading to even more problems down the road.
Instead, there are better alternatives to decreasing debt. Bankruptcy is certainly not one of them, unless you truly have no options left.
Ultimately, bankruptcy is a painful, but sometimes necessary step to alleviate your financial situation. The important thing is not to see it as a terminal condition, but to take steps to recover. Part of that is improving your credit score - which applies to all of us and not just bankrupt victims. You can find out more about raising your score in a short period of time from our guide here.