By Nabilah Mohammad
Bankruptcy is not something many would consider as a solution when faced with a challenging financial situation. Along with it comes a host of negative clauses. And because few people see it coming, the people who become bankrupt rarely understand what they are subjected to and lose hope or do not know how to get out of it.
BANKRUPTCY IN SINGAPORE
According to Singapore’s Ministry of Law (MinLaw), bankruptcy is a process where a debtor is publicly recognised to be unable to pay the debts he owes. It is a legal status, declared by the High Court, of an individual who cannot repay debts of greater than $15,0001.
A bankruptcy application can be filed by either the debtor or a creditor. Once adjudged bankrupt, administration of the bankrupt’s affairs is often handled by a trustee, who can either be an Official Assignee (OA) or a Private Trustee-in-Bankruptcy (PTIB). The trustee’s duties include acting as the receiver of the bankrupt’s estate, investigating the conduct and affairs of the bankrupt, recovering and realising the bankrupt’s assets for distribution to the bankrupt’s creditors, and assisting the bankrupt in obtaining a discharge from bankruptcy.
Bankruptcy or personal insolvency should be the last resort after exhausting all other avenues as it has far-reaching effects in many areas of one’s life.
The Karyawan team spoke to Nur Fadhilah Abu Hassan, a Senior Case Officer at the Debt Advisory Centre of AMP Singapore. A huge part of her work involves providing advisory services and assistance to clients who are in debt. Fadhilah shared that there are several restrictions imposed on bankrupts.
“A bankrupt for instance, cannot leave Singapore without the OA’s permission. They are also not allowed to borrow more than $1,000 without informing the lender that they are bankrupt and are restricted from participating in the management of a business or to act as the director of a company without the permission of the OA or the High Court,” Fadhilah shared.
WHY WOULD ANYONE APPLY FOR BANKRUPTCY?
In 2020, there were 2,833 bankruptcy applications and a further 965 bankruptcy orders in Singapore. From the start of 2021 to April, there were 1,046 bankruptcy applications and 254 bankruptcy orders made2. Indeed, being an undischarged bankrupt can be very disruptive to one’s lifestyle, yet, there are many who opt to file for bankruptcy. Why is this so?
We spoke to three people about why they declared bankruptcy, their experiences as bankrupts, and the impact it had on their lives.
Rafi (not his real name), a 43-year-old safety officer, recently filed for bankruptcy over a $93,000 debt from credit cards and moneylenders. He had bills piled up from years ago that he could not pay off. Rafi finally sank into a quicksand of debt when his renovation business bottomed out.
“I was struggling with debt for a few years. I had a few (credit) cards back then. My ex-wife spent a lot with my credit cards. I intended to pay but over time, the debt accumulated. The banks were chasing me for so many years. I paid once then I ignored them. I was still young back then, so I didn’t take it seriously. I took new loans to pay off old loans. I even borrowed money from licensed moneylenders. Recently, I took a $20,000 loan to start a renovation company, with hopes that it will prosper and recover myself. However, that failed too, and I ended up with no other choice but to file for bankruptcy,” Rafi shared.
When asked why he filed for bankruptcy, Rafi shared that a bankrupt will see a lower payback amount in comparison to their present debts, because the amount needed to pay back monthly will be calibrated according to their income.
Legal action from creditors will also cease as long as the debts were incurred before their bankruptcy.
“I sought help from professional advisors and decided that bankruptcy was the best choice for me. After submitting my Statement of Affairs and discussing my monthly contribution plan with the OA, my target amount was reduced to about $24,000 instead of $93,000, which means I will only have to pay about $480 monthly for the next five years,” Rafi shared.
We also spoke to Ali (not his real name), now 52, and working as a part-time security officer. Saddled with a $80,000 debt at quite a young age, Ali was declared a bankrupt in 1998 over debt accumulated from three credit cards.
“I was about 28 when I declared bankruptcy. I was working as a safety supervisor in the construction industry at that time. I had a few credit cards and overused them. I applied for a loan to buy cars among many other things. Eventually, my debt became uncontrollable. I was young and was enjoying life at that age, so I did not think about the consequences,” Ali shared.
THE STRUGGLES OF BEING A BANKRUPT
According to Ali and Rafi, the label of being a bankrupt is hard to shake especially when it comes to applying for jobs. According to them, bankruptcy can make it difficult to find employment given that many employers will disqualify a candidate with a bankruptcy filing found from a background check.
“Of course, there are both pros and cons when considering filing for bankruptcy. I am at a disadvantage when it comes to job applications. I had to decline all the good job offers that came my way. I was deeply affected especially after turning down a particular company that I’d always wanted to work with because I had to declare my financial situation,” Rafi said.
“I do not think the requirement for us to declare our bankrupt status when applying for work is fair as it affects the job application process. Why would someone want to hire a bankrupt? Employers need the best person. I feel that we are associated with rubbish,” Ali explained.
According to Singapore Legal Advice, bankruptcy and insolvency search can be conducted by anyone, including employers, employees, investors and creditors3. Employers, for instance, may want to conduct a bankruptcy search on a job applicant to be able to make an informed decision on whether to hire them and for which position, especially if it entails considerable financial risks.
Aside from the job application process, Ali also shared that life as a bankrupt is extremely restrictive with officers keeping a close look at his expenses, especially anything deemed luxurious, including taking taxi rides over public transport. Ali added that his assets were also seized and liquidated to pay his creditors back. He shared that almost everything he owned was taken from him.
“My car was repossessed, along with all my belongings in the car. I still had to pay the outstanding car loan by the way. They came to my house and tagged a price on almost all my furniture. The karung guni man came and bought my belongings at a very cheap price. Even then, that does not pay off my debt. I felt like it was just a process to disgrace me. They took everything, including my bed. The broom and dustpan were (the only things) left in my home,” Ali shared.
According to MinLaw, if a secured creditor holds security over a bankrupt’s property or goods, they have a right to sell the property or goods if the bankrupt does not continue to meet the payments when they are due4. However, some assets enjoy bankruptcy protection and are excluded from the bankruptcy estate. These assets include HDB flats where at least one of the owners is a Singapore citizen, his Central Provident Fund (CPF) contribution, necessary household furniture, and property held by the bankrupt on trust for any other person5.
We also spoke to Aida (not her real name), aged 57, who is currently working in a childcare centre. Aida was declared bankrupt in 2006 after owing her creditors debts amounting to $60,000. She was initially besieged by demand letters which she attempted to honour. However, she was not able to continue to pay and failed to comply with the statutory demand to pay her debt for at least a month, and was eventually issued a letter to go to court and declare bankruptcy. Like Rafi and Ali, Aida too faced many challenges in her day-to-day life.
“I had to close down my company. I had to return my credit card to the bank. It affected my monthly income. My ex-husband and I had to take up part- time jobs in order to pay our debts,” Aida shared.
DISCHARGED FROM BANKRUPTCY
Aida, who now holds a stable job, shared that her experience taught her many lessons including not to be a guarantor for anyone, including family members. Aida was legally bankrupt for ten years before getting discharged in 2016.
Similarly, Ali has also been discharged from bankruptcy in 2018, after 20 years mired in bankruptcy. He shared that the extension was probably due to him defaulting on his monthly contributions.
“My monthly contribution was set to $150 initially and was raised to $300 because I had a better pay. It was too heavy for me as I had four dependants. I resorted to gambling in an attempt to pay off the debt, but I kept losing, causing me to be in deeper debt. There were many other problems during that time that led me to skip my monthly payment, which probably led to the extension of my bankruptcy (period). After 19 years, I finally told myself that I must change. I appealed for a lower monthly contribution which was approved, and I have honoured the payment (schedule) since then. I eventually got discharged in 2018,” Ali shared.
Under the differentiated discharge framework, first-time bankrupts will generally be eligible for discharge in five to seven years while repeat bankrupts will generally be eligible for discharge in seven to nine years6. In deciding whether to issue a Certificate of Discharge to the bankrupt, the OA will take into consideration factors such as the bankrupt’s general conduct in bankruptcy and the level of the bankrupt’s co-operation in the administration of the bankruptcy estate7. According to MinLaw, there is no automatic discharge from bankruptcy in Singapore.
So how does one get out of bankruptcy?
“One way is by full repayment of debt which is by paying off all outstanding debts. Another way is through the settlement offer, which is making a proposal to creditors to repay your debts. A bankrupt can also be discharged by the High Court by applying to the court for an order of discharge, or discharged by the OA, by fully paying off their target contribution. Depending on which method is used, it is also possible to have your name removed from the bankruptcy register after that,” Fadhilah shared.
BANKRUPTCY – THE STRUGGLES AND THE LESSONS
The interviewees shared that society often looks at bankrupts as immoral or people who have taken the easy path out of their financial situations. This according to them, however, is untrue as going down this route often means facing obstacles in making even the simplest of choices in their daily lives, beyond living with the stigma.
After so many years of losing nearly everything, Ali shares that he is now picking up the pieces and rebuilding his life. He is debt-free and the temptation to spend on credit does not exist for Ali today. When he filed for bankruptcy, all his active credit cards were cancelled, and he has not obtained any new ones since.
“Now that I am free, I am relieved. No calls from officers chasing for payments. I dare not apply for credit cards now,” Ali said.
For Rafi, it was the most important decision he made, and the only way out of what he felt was an impossible situation. He felt that the decision had freed him from the ballooning debt that had been weighing him down. Being labelled a bankrupt is not a big deal to Rafi, but being paralysed by debt, was not something that he could imagine living with for the next few years, especially with his kids around.
“Many people do not understand why some people end up being bankrupts. Most of them assume that we ended up in debt because we lost the money to enjoyment, but most of the time, it is not. Hear our story before judging us. My kids are growing. They are one of the main reasons why I made this decision. If I am always in bad debt, then I may not be able to apply for any more loans in the future if my kids pursue higher education,” Rafi said.
The interviewees caution against getting too swayed by friends who might offer unsolicited advice, especially at the prospect of bankruptcy. According to them, every case is different, so it warrants getting professional advice – even if it comes at a cost.
“Seek advice from legal agencies for their expertise on the matter before making any decision,” Fadhilah shared.
Ultimately, although stressful and painful, bankruptcy can sometimes be the necessary step, especially when you are in a tight spot with spiralling debt with no foreseeable way out. The important thing is not to see it as an impossible situation, but to take steps to repay and recover.
“People usually delay (filing for bankruptcy) because they are scared or are in denial despite accumulating thousands of dollars in debts. They try to reassure themselves that they can eventually pay off the debt, but they end up in a worse situation with more debt. Seek professional help and go for counselling. I used to be so scared when I got unknown calls. Now, I am relieved from harassing phone calls and unforgiving creditors,” Rafi shared.
“We have to learn from the mistake and solve the problem instead of running away from it. If you can settle the debt, then settle it immediately. People will tell you that you can push through and make the payment. They will advise you not to file for bankruptcy, but they are giving advice based on what they believe. You need to think about what is best for you, then make your decision solely based on that,” Ali shared.
1 See: Ministry of Law. Who is the Official Assignee? Available at: https://io.mlaw.gov.sg/bankruptcy/who-is-the-official-assignee/
2 Ministry of Law. Number of Bankruptcy Applications, Orders Made and Discharges. 2021, April. Retrieved from: https://io.mlaw.gov.sg/files/NumberofBankruptcyApplicationsOrdersMadeandDischarges(Apr2021).pdf/
3 Singapore Legal Advice. Bankruptcy/Insolvency Searches for Singapore Individuals & Companies. 2020, October 22. Retrieved from: https://singaporelegaladvice.com/law-articles/bankruptcy-insolvency-searches-singapore-individuals-companies/
4 See: Ministry of Law. Information for Creditors. Available at: https://io.mlaw.gov.sg/bankruptcy/information-for-stakeholders/information-for-creditors/
5 See: Ministry of Law. Bankruptcy Application and Impact of Bankruptcy. Available at: https://io.mlaw.gov.sg/bankruptcy/information-for-bankrupts/impact-of-bankruptcy/
6 Vijayan, K. C. Fewer going bankrupt as relief measures kick in. The Straits Times. 2020, May 19. Retrieved from: https://www.straitstimes.com/singapore/fewer-going-bankrupt-as-relief-measures-kick-in
7 See: Ministry of Law. Discharge from Bankruptcy. Available at: https://io.mlaw.gov.sg/bankruptcy/information-for-bankrupts/discharge-from-bankruptcy/
Nabilah Mohammad is a Research Analyst at the Centre for Research on Islamic and Malay Affairs (RIMA). She holds a Bachelor of Science in Psychology and a Specialist Diploma in Statistics and Data Mining.
This commentary was also published in The Karyawan, July 2021, Volume 16, Issue 3.
Photo Source: The Karyawan