Monday, January 25, 2016

7 common questions about bankruptcy in Singapore (answered!)

Bankcruptcy
Bankruptcy is a common fear among Singaporeans. With high costs of food, housing, and healthcare, the dreaded “B” word is on many minds. But most of what we imagine are just myths, and hopefully this will put your mind at ease:

1. Will I go bankrupt the moment I cannot repay my loans?

Bankruptcy is a legal status that is granted by the High Court if you owe at least S$10,000. Either the debtor or the creditor may file for bankruptcy. You cannot be declared (or self-declare) bankruptcy for small debts of a few thousand dollars.

Even if you owe S$10,000 or more, you are not always immediately declared a bankrupt. Organisations such as Credit Counselling Singapore can mediate between you and your creditors, to work out a repayment plan without an official declaration of bankruptcy. This is beneficial to both parties, as your creditors will probably get back more of their money this way, and you will avoid bankruptcy status.

2. Does declaring myself bankrupt wipe out my debts?

No, you are still liable to repay the debts. However, the court will assign an official (the Official Assignee, or OA) to oversee your repayments and mediate between you and your creditors.

The goal is to ensure a bankrupt repays as much of the loan as possible without too much deprivation (e.g. the family of the bankrupt will still have necessities like shelter, food, healthcare, and so on, while excess monies go toward debt repayment.)

In some cases, a creditor may write off certain debts during the process of negotiating repayments. However, this varies on a case-by-case basis.

3. Does bankruptcy end after X years?

In Singapore, there is no automatic discharge from bankruptcy. The OA will monitor your efforts at repayments, and if you have met agreed-upon goals (these vary on a case by case basis), the OA will apply for you to be discharged from bankruptcy.

If the OA’s application is accepted, you will be issued an official Letter of Discharge. Bankruptcy ends when you have obtained this letter.

Note that the conditions for discharge may vary significantly between different cases. For example, one bankrupt may have to pay off all his debts, whereas another may only need to pay off 80% of the outstanding debt. The terms vary depending on what the creditors are satisfied with, and on the debtor’s current financial standing (e.g. a bankrupt who happens to have a high paying job is likely to face harder conditions.)

4. Can a bankrupt ever get a loan?

Bankruptcy appears on the credit report issued by the Credit Bureau of Singapore (CBS), and a bankrupt has no credit grade (they have an ungraded rating of “Hx”). 

Most banks and financial institutions will not take the risk of lending money to a bankrupt. There is nothing in the law to stop them from doing it, but it is improbable that they will take such a risk.

If you are a bankrupt, you do not need to declare it for loan applications of S$500 or less. This means you can sometimes get loans in these small amounts.

If you have been officially discharged for bankruptcy, it will no longer show on your credit report after five years. You can then apply for loans as per normal.

5. Can bankrupts leave the country?

A bankrupt can leave the country with permission from the OA. This makes travel a little more troublesome.

For example, if you are bankrupt you will need to notify the OA two weeks before you travel, and you will have to prepare satisfactory documents. If you are going abroad for work reasons, you will need written evidence from your employer. 

Bankrupts that are considered to be in good standing (prompt repayments, employed, paperwork always filed on time) can usually obtain travel permits of a month or more. Bankrupts that are not in good standing will usually have travel applications denied.

6. How much must I pay every month if I am bankrupt but still employed?

The exact amount will be worked out between you, the OA, and your creditors. The amount will vary based on the size of your pay cheque, whether you have family, whether you have special healthcare needs, etc.

7. Can my creditors seize everything if I declare bankruptcy?

If any of your assets are used as collateral for loans, your creditors can seize and sell those. If the proceeds of the sale exceed the secured debt (e.g. your house sells for much more than the amount you borrowed to buy it), the excess will usually be used to repay any other debts.

Some of your assets cannot be seized. These include:
  • Private property that you hold in trust for someone else (e.g. if you hold a house in trust for your nephew, it will not be seized as a result of your bankruptcy)
  • HDB flats where at least one owner is a Singaporean citizen.
  • Money in your CPF account
  • Some types of life insurance policies (e.g. an endowment policy bought for your children)
  • If you sue someone because they caused you injury, damaged your property, etc. any damages you are awarded still go to you
The best thing to do is to avoid bankruptcy altogether. When you use loans of any sort, make sure they are affordable, and do not have interest rates that could spiral out of control. You can browse loan options with the lowest possible interest on SingSaver.com.

This article is contributed by Allyson of SingSaver.com.sg

2 comments:

  1. It is a legal status declared through the High Court when someone cannot repay debt of $10, 000 or more – this can be raised to $15, 000 if improvements proposed recently through the Ministry of Law are passed. You can seek bankruptcy relief or your creditor, such as your bank, may affect the High Courtroom to issue a Bankruptcy Order versus you.

    If you’ve already been officially declared broke, an Official Assignee is going to be tasked to deal with your financial extramarital liasons. The first thing you need to do is fill out a Statement connected with Affairs form in 21 days on the day your Chapter 7 Order was made. This includes your own details, assets as well as liabilities, even your children’s income (if any). If you offered away or offered any assets within the last five years ahead of your Bankruptcy Order was made, precisely the estimated worth need to be provided.

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    ReplyDelete
    Replies
    1. James : Thanks for providing additional information in the comment.

      Delete

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