Applying for Bankruptcy

You may not think that bankruptcy could ever happen to you, but life and finances can surprise anyone. Those who think bankruptcy is an easy solution to a bad financial situation should think again – it should never be taken lightly. But at the same time, it doesn’t have to mean complete disaster for you and your family. The bankruptcy regime in Singapore tries to balance the legal obligations of parties involved, with allowing bankrupts to have an acceptable living standard. It also gives them the chance to recover from their financial difficulties. In Singapore, the bankruptcy proceedings contain built in mechanisms designed to protect both creditors and debtors, ensuring stable finances for both sides.

It’s easy to be overwhelmed by the prospect of bankruptcy, but if you understand the law in this area then you’ll find the situation easier to navigate. This article discusses personal bankruptcy in Singapore and answers some common questions.

On 30 July 2020 the old Bankruptcy Act (which dealt with personal bankruptcy/insolvency) was replaced by the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). The IRDA also replaces the Companies Act (which dealt with corporate insolvency).

What exactly is bankruptcy?

Bankruptcy can be defined as a legal status, usually arising due to cashflow problems. If someone is unable to pay their liabilities when due, they may become bankrupt. For instance, your $1m mortgage requires you to pay $5,000 monthly – as long as you do, you’re in no danger of bankruptcy, even though you can’t pay the full mortgage in one go. But if you owe $20,000 due immediately, you will become bankrupt if you can’t pay it, regardless of how large your factor is.

Why would someone file for bankruptcy?

There are certain advantages to filing for voluntary bankruptcy:

• The bankrupt cannot be the subject of legal action (whether commencement or enforcement)
• Any existing legal action against them will be halted and may not proceed
• All property belonging to the bankrupt vests in the Official Assignee (or liquidator) – this allows orderly disposal of the bankrupt’s property and avoids ‘fire sale’ prices.

What are the requirements to file for bankruptcy?

A bankruptcy order will only be granted by the High Court if the debtor and their debt fulfill certain criteria. There are further requirements to fulfill if a creditor files for bankruptcy.

The debt owed must be due, and be more than S$15,000, and the debtor must be unable to repay it.

Whether it is the creditor or debtor filing for your bankruptcy, according to section 310(1) of the IRDA, the debtor must fall into one of the following types:

• Domiciled in Singapore;
• Owns Singapore property;
• Has transacted business in Singapore for at least a year;
• Has a place of residence in Singapore for at least a year;
• Has ordinarily been resident in Singapore for at least a year

 When can a debtor file for voluntary bankruptcy?

To file for voluntary bankruptcy in Singapore, a debtor must owe a liquidated sum of at least S$15,000 which they cannot pay, and which is due immediately and is enforceable in Singapore.

When can a creditor file for bankruptcy?

Creditors can apply for bankruptcy when the debtor owes at least S$15,000, and:

• The debtor has not complied with statutory demands to pay for at least 21 days, or hasn’t made a court application to have the demand set aside within 14 days.

How to file for bankruptcy

All bankruptcy applications in Singapore are filed at the High Court.

Debtors wanting to file for bankruptcy must complete and submit the following forms:

• A debtor’s application for bankruptcy;
• An affidavit supporting the debtor’s application for bankruptcy;
• A statement of affairs listing assets, liabilities, monthly expenses, employment status, etc;
• An affidavit verifying the statement of affairs.

If a creditor is filing for bankruptcy, they must submit a creditor’s bankruptcy application, and an affidavit supporting the application, plus all other relevant documents.

A deposit of S$1,850 must be paid by the applicant to the Official Assignees. They will administer the debtor’s estate.

The completed documents and payment receipt must be submitted to the legal registry at the Supreme Court. A commissioner of oaths should affirm the affidavits.

A hearing date will be given, and the debtor must attend.

The Debt Repayment Scheme (DRS)

If a debt is below S$150,000, the Official Assignee may allow the debtor to proceed under the DRS, rather than going bankrupt. Under the DRS, the main differences are that:

1. The debtor isn’t declared bankrupt,
2. The debtor usually has to repay the whole sum owed,
3. The maximum installment period is 5 years.

If the Official Assignee decides that the DRS is not suitable for the debtor, then unless they can raise enough money or make an agreement with their creditors, the debtor will be declared bankrupt by the Court.

What happens after being declared bankrupt?

Once someone is declared bankrupt, the Official Assignee will administer their affairs. An Official Assignee is an officer of the court.

Following the bankruptcy order, the debtor will be contacted by the Official Assignee in writing, and the two must meet to decide the way forward.

Assets of the bankrupt form part of the bankrupt’s estate, controlled and managed by the Official Assignee. Anything owned which has value at the date of the order or even after that date, will fall into the bankruptcy estate. If the bankrupt receives any gifts before being discharged from bankruptcy, they will also form part of the estate.

Liquid assets may be sold by the Official Assignee, and a target payment will be determined. If the debtor is in employment, they must make monthly contributions to the bankruptcy estate. The Official Assignee will help to plan the debtor’s monthly contribution schedule, and manage their affairs during the bankruptcy. Proof of claims can be submitted by creditors, and they’ll receive payments from the bankrupt’s estate.

But some assets are protected; they do not form part of the bankrupt’s estate and cannot be given to creditors:

• Property held on trust for another person by the bankrupt;
• Tools, books, equipment or vehicles that the bankrupt needs for their employment or business;
• Clothing, bedding, household equipment, furniture and necessary provisions required for domestic needs of the bankrupt and their family;
• Property that’s legally excluded – like a Housing and Development Board (HDB) flat (if at least one owner is a Singapore citizen), or money in a Central Provident Fund (CPF) account;
• The remainder of the bankrupt’s monthly income, once monthly contributions are deducted;
• Annual bonuses or wage supplements the bankrupt receives as part of their income.

Can a family be liable for the debtor’s debts?

Usually, no. A family will only be liable for debt if they are guarantors or co-borrowers for the bankrupt’s loans. For home mortgages that are in the name of the debtor and their spouse, then the spouse is liable too. If debtor and spouse live in an HDB flat, and one of them if a citizen of Singapore, then legal action for outstanding payments can’t be taken against the debtor.

What is your position once declared bankrupt?

Although bankruptcy is serious, you can still work and earn money, but restrictions and responsibilities will apply. You must:

• Disclose all assets, insurance policies, title deeds, tax records etc. to the Official Assignee – including those you disposed of or gave away within the last five years prior to bankruptcy;
• Keep the Official Assignee updated with your contact details and address;
• Attend creditor meetings;
• Contribute monthly to your bankruptcy estate.

You must not:

• Become a trustee or personal representative without getting court approval;
• Leave Singapore without permission from the Official Assignee;
• Start legal proceedings against another person without permission from the Official Assignee (except for divorce or personal injury proceedings);
• Borrow more than $500 without informing the lender of your bankrupt status;
• Act as a company director or manage a business without permission from the High Court or Official Assignee;
• Carry out business without informing partners or clients that you are a bankrupt.

Bankruptcy categories – red and green zones

In Singapore, bankrupts fall into either red zones or green zones. Depending on which category they are in, the bankrupt may get certain privileges or may be deprived of them.

For example, if the bankrupt doesn’t file their statement of affairs on time, or doesn’t declare all their assets, or they have no good reason for being unemployed or miss instalment payments, they risk being placed in the red zone. They will no longer be permitted to travel overseas or manage a company.

If the bankrupt is in gainful employment, is up to date with their filings, pays instalments regularly, and is cooperative, then they’ll be put in the green zone – where they are more likely to be given privileges.

How do you get out of bankruptcy?

In Singapore, there are 4 ways of being discharged from bankruptcy:

(1) Paying all outstanding debts and bankruptcy costs

This is the fastest way to leave bankruptcy and move on. Once done, the Official Assignee of the court will issue a certificate of annulment – meaning your name is removed immediately from the bankruptcy register. Once annulled, it will be like you were never declared bankrupt.

(2) Offering a settlement to repay all creditors

You can propose to repay all creditors with a settlement. If at least 50% of the creditors (holding at least 75% of the value) accept the proposal then you can receive a certificate of discharge from the Official Assignee. You’re discharged from bankruptcy, though your name will remain for another 5 years on the register of bankrupts – only repaying your debts can remove it.

If the proposal is accepted by all creditors, an annulment certificate will be issued, removing your name from the bankruptcy register.

If debts are not repaid by the bankrupt in accordance with proposals, certificates of annulment or discharge can be revoked and you will remain bankrupt.

(3) Applying to the High Court for a discharge

Following the grant of a discharge order by the court, your name will be removed from the register 5 years after the discharge date, when debts are repaid in full. The court will consider various factors when looking at your discharge application, such as the amount of debt, the reason for your bankruptcy and conduct during bankruptcy.

The court is unlikely to issue a discharge order or ‘special facts’ are present – for example, if there was a previous declaration of bankruptcy against you, or you’ve committed any bankruptcy offences, or have lived extravagantly and contributed to your bankruptcy, then a discharge order is unlikely. If an order is granted by the court, it will be subject to conditions.

Section 394(5) of the new Insolvency, Restructuring and Dissolution Act (IRDA) lists these ‘special facts’.

(4) Discharge by certificate of the Official Assignee

A certificate of discharge can be granted by the Official Assignee if the bankrupt has:

• Paid the target contribution in full, or there are special circumstances which mean the bankrupt is unable to do so; or
• An applicable validity period has elapsed from the date that your statement of affairs was submitted. This period will depend on whether you have been bankrupt before, whether you repaid your target contribution, and whether enough of your creditors have agreed. For instance, for first-time bankrupts, who have paid target contributions in full, the period is 3 years starting from the date you submitted your statement affairs – provided none of your creditors have an objection. (If they do object, the period will be 5 years).

Only the Official Assignee can apply for this method – not the bankrupt themselves.

The Insolvency, Restructuring and Dissolution Act came into force at a time when lots of people and businesses are being adversely affected by the Covid-19 pandemic. Though the threshold for when a person is allowed to file for bankruptcy has been increased temporarily by the Singapore government, it is likely that there will be a rise in bankruptcy applications in the months and years to come.

Alternatives to declaring bankruptcy do exist – such as the debt repayment scheme, debt consolidation plans, and voluntary arrangements. Make sure you have a good understanding of your options; this will help you manage your affairs during times of financial difficulty.