Thanks to Covid-19, the Ministry of Law's Insolvency Office saw bankruptcy applications peaking at 462 in March this year — a 40-month high — before dropping to 160 in April after the Covid-19 (Temporary Measures) Act was passed in Parliament.

What exactly is bankruptcy, and what does it mean to be a bankrupt?

What is bankruptcy?

Bankruptcy is a legal status that can be taken on by an individual who is unable repay their debts.

If you are in debt and you can't pay up, your creditors can file legal proceedings to make you a bankrupt. You can also file for bankruptcy on your own.

The monetary threshold to commence bankruptcy proceedings is S$15,000, but has been temporarily increased to S$60,000 under the Covid-19 (Temporary Measures) Act.

Why apply for bankruptcy?

Creditors can ensure that debt repayment is supervised

Creditors can ensure that debt repayment is supervised through official channels, rather than leaving it to the debtor to manage.

Once a person is declared a bankrupt, the High Court will appoint an Official Assignee, a public servant, or a Private Trustees in Bankruptcy (PTIBs) who are tasked with recovering the bankrupt's assets and distributing them to the creditors.

The bankrupt person must disclose all their assets and liabilities (such as private property, cash in bank accounts, insurance policies, inheritance, vehicles and company shares) to the Official Assignee or PTIB. These assets will be realised or sold off to pay off the bankrupt's debt.

Not all assets will go in to the bankruptcy estate, however. Some assets are protected from creditors. These include HDB flats owned by Singapore citizens, CPF contributions, and certain insurance policies that are covered under section 73 of the Conveyancing and Law of Property Act.

The bankrupt must set a target contribution into their bankruptcy estate. It will then be used to pay off their debt.

Debtors have debts frozen, are protected from legal proceedings

Once a person is declared a bankrupt, their debt stops accumulating.

This means that the creditor cannot continue charging interest on the principal sum owed.

The creditor also cannot commence legal proceedings against the bankrupt to recover the debt owed before the debtor was declared a bankrupt, unless they obtain special permission from the courts to do so.

The Official Assignee, or the appointed PTIBs will manage the bankruptcy estate and work towards helping the bankrupt obtain a discharge from bankruptcy.

Not everyone can file for bankruptcy in S'pore

The basic requirement for filing for bankruptcy is that the debtor owes at least S$15,000 that they cannot pay.

The debtor must also fall within one of the following scenarios:

• Is domiciled in Singapore, meaning that they reside here.
• Has been a Singapore citizen, a Singapore Permanent Resident, or an Employment Pass holder who resides in Singapore and has been doing so for at least a year.
• Has had a place of residence in Singapore for at least a year
• Has conducted business in Singapore for at least a year

A creditor who is filing a bankruptcy application must prove that the debtor is unable to pay the debt. The law recognises various ways of doing so, in Section 310 of the Insolvency, Restructuring and Dissolution Act :

• The debtor neither complied with nor contested a statutory demand to pay their debt, for at least 21 days
• The debtor failed to comply with a court-issued execution to pay the debt
• The debtor fled the country to avoid repayment
• Where the creditor's debt was recognised under the debt repayment scheme, but the Official Assignee later certified that the debt repayment scheme is either inapplicable, or has failed

Why might bankruptcy be something to be avoided?

Aside from giving up your assets, being a bankrupt comes with several restrictions.

And these restrictions come with harsh punishments — either a fine, jail term, or both — for non-compliance.

Restrictions on property

Since their private property is already in the bankruptcy estate, bankrupts cannot dispose of it.

On the bright side, bankrupts can still purchase HDB flats. Bankrupts who wish to purchase HDB executive or maisonette flats need to prove that they have the means and need for such big flats, however.

Travel and other restrictions

Bankrupts also cannot travel overseas — even across the Causeway to Malaysia — without the prior permission of the Official Assignee or the appointed PTIB.

If they wish to travel overseas, they will need to submit a travel application to the Official Assignee or the PTIB. According to the Ministry of Law, approval for travel applications depends on the regularity of a bankrupt's monthly contributions and how cooperative they are.

If a bankrupt wants to borrow money without disclosing their bankruptcy status, they can do so for loans up to S$1,000. Anything more than S$1,000 would require disclosure of their status.

Restrictions on positions that can be held

Bankrupts also cannot hold director and manager positions in corporations, limited liability partnerships, or businesses unless they have permission from the Court or Official Assignee. If a bankrupt wishes to form a new business, they must inform all business partners and clients of their bankruptcy status.

Bankrupts also cannot become a Member of Parliament, a Judge, a Magistrate or Justice of the Peace.

This is why opposition politician Lim Tean had to repay a debt of more than S$200,000 before the general election in 2020.

Bankruptcy database listings can be permanent

Singapore has a bankruptcy database, which lists the names of bankrupts. You can actually find out whether a person is a bankrupt from the Ministry of Law Insolvency Office’s E-Services, after paying a small administrative fee.

This is usually one of the long term implications of bankruptcy. For the number of the years that a person is declared a bankrupt, their name and status is publicly searchable. This means that their current and potential employers can access this piece of information.

The good news is that bankrupts can have their names removed from the database after a period of time, although it depends on how they were discharged.

Bankrupts who have been discharged for five years or more will have their records deleted. As for bankrupts who have their bankruptcy orders annulled, their records will be removed immediately.

Those who were discharged without paying their target contribution in full after seven years (for first timers) or nine years (for repeat bankrupts) will have their names in the database permanently. This only applies for bankruptcy orders made after July 31, 2016.

Red or green zones depending on conduct

While the restrictions on bankrupts are somewhat onerous, they can be relaxed, depending on the bankrupt's conduct. This section here is only applicable bankruptcy orders bankruptcy orders made between January 1, 1996 and July 31, 2016)

Bankrupts are categorised into Red and Green "Zones".

According to the Ministry of Law, this categorisation helps to streamline case administration and rewards those who display good behaviour with privileges like being granted a travel permit of more than a month to any country. Bankrupts who are in the Green Zone will get their travel applications approved online immediately.

Green Zone qualities include:

• Statement of Affairs filed on time
• Gainfully employed
• Regular in making instalment payments
• Instalment amount commensurates with income and needs of family
• Timely submission of Income and Expenditure statements
• Co-operative with the Official Assignee
• No pending warrant of arrest
• No pending prosecution action
• No complaint under investigation
• No offences committed under the Bankruptcy Act (Chapter 20)
• Full disclosure of assets (both local and overseas)

On the other hand, bankrupts who do not display the above qualities would be in the Red Zone.

As a disincentive, bankrupts who are in the Red Zone will only get a review of their cases after more than five years in bankruptcy, while those in the Green Zone will have a review of their case after five years, to assess their suitability for discharge.

Will creditors be paid back in full?

Creditors who incur expenses in applying for their debtors' bankruptcy do receive compensation, subjected to the availability of funds in the bankrupt's bankruptcy estate.

According to the Ministry of Law, the bill would cover the petitioning creditor’s deposit to the Official Assignee, as well as solicitor’s fees and disbursements incurred by the creditor in making the Bankruptcy Order against the debtor.

That said, not all of the dividends from the bankruptcy estate will go to creditors.

The Official Assignee deducts a fee from deposits placed into the debtor's bankruptcy estate, starting with 10.3 per cent on the first S$10,000.

A fee is also levied on the dividends distributed to creditors, starting with 5.15 per cent on the first S$10,000.

Getting out of bankruptcy

There are four ways of getting out of bankruptcy and they amount to either an annulment (you are treated as if you were never declared bankrupt) or a discharge (you retain your history as a bankrupt).

First off, you can get an annulment of the bankruptcy order. This is done by paying off all your debts and costs incurred from the bankruptcy proceedings. You will then receive a Certificate of Annulment from the Official Assignee. Your name will also be removed from the bankruptcy database.

The second way to get out of bankruptcy is to make a settlement offer to the creditors. The settlement offer must be accepted by a majority portion of the creditors and this group of creditors must hold at least 75 per cent of the debt.

If this threshold is met, you will receive a Certificate of Discharge even if the offer is not unanimously accepted by all creditors.

If the settlement offer is unanimously accepted by all creditors, you will receive a Certificate of Annulment.

The third method is applying to the High Court for an order of discharge.

Aside from the views of the Official Assignee and the creditors, the High Court will consider facts like bankrupt's age, earning capacity, assets, the bankrupt's monthly contributions, the number of years in bankruptcy, and level of cooperation. The bankrupt or the PTIBs can also apply for a discharge.

The last method is discharge by Certificate of the Official Assignee. The Official Assignee may choose to discharge a bankrupt after considering factors like the regularity of their monthly contributions and their conduct. For cases under PTIBs’ charge, the PTIBs can recommend the cases to the Official Assignee for the issuance of the Official Assignee’s Certificate of Discharge.

Bankruptcy as a last resort

There are alternatives to bankruptcy proceedings. In fact, the Ministry of Law urges debtors and creditors to exhaust all other debt-recovery options before filing for bankruptcy.

Debtors who have a regular income and owe less than S$150,000 in debts can opt to join the Debt Repayment Scheme once a bankruptcy application is made. In this way, this scheme helps debtors to avoid bankruptcy.

The bankrupt will have to be referred to the High Court to be assessed his or her suitability to be placed in this scheme.

Under the Debt Repayment Scheme, debtors have to stick to a repayment plan requiring regular debt repayments to the creditors over a fixed period of time.

Alternatively, debtors can opt for a Voluntary Arrangement. This is essentially a formal repayment agreement between debtor and creditor which is supervised by a nominee.

This nominee has to be either a registered public accountant, a lawyer, or a person gazetted by the Minister.

Overall, bankruptcy is probably better for a debtor than a creditor, in that the debt won't keep rolling and the debtor will be able to pay it off at his or her own pace. Debtors should also consider the restrictions (e.g. travel restrictions) that might affect their current and potential employment opportunities.

Creditors, on the other hand, might not get back the full amount owed, even though some amount is better than nothing.

However, as seen from above, bankruptcy has both short and long term implications for the debtor. Both parties should try to avoid it as much as possible.

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