More people declared bankrupt in 1st half of 2024; number of undischarged bankrupts up

Applications for bankruptcy rose in the first half of 2024, as did the number of people declared eventually bankrupt.

Recent Law Ministry (MinLaw) data shows that 2,334 people filed for bankruptcy in the six months to June 30, up 25 per cent on the same period in 2023, while 594 were later declared bankrupt, an increase of 11 per cent.

It also notes that there were 9,903 undischarged bankrupts as at June 30, 2.4 per cent more than the 9,669 as at Jan 31.

Filing for bankruptcy can be distressing, given the stigma that surrounds it, one that brands applicants as failures or over-spenders. 

There are also more serious repercussions, as bankrupts are restricted from taking on certain roles and may even lose their jobs. 

That is why bankruptcy should be regarded only as a last resort, particularly when it starts to put a strain on a debtor’s mental health or on the family.

Avoiding it essentially boils down to being financially prudent and ensuring you do not overspend and end up in a cycle of never-ending and ever-ballooning debt.

An individual can apply for bankruptcy in the High Court or his creditors can do so if the person has unpaid debts of at least $15,000.

The case will be assessed to determine if the person is suitable for the Debt Repayment Scheme (DRS), a programme administered by MinLaw that aims to help a borrower avoid bankruptcy. 

An individual is considered for the DRS only if a bankruptcy application has been filed against him; debtors cannot apply directly to join. There is no certainty he will get onto the DRS as he must meet certain criteria, including a total debt size of not more than $150,000, and most importantly, he must be employed.  

Those who qualify for the DRS must still repay their debts in monthly instalments for a fixed period of not more than five years, said Ms Tan Huey Min, general manager of Credit Counselling Singapore.  

Ms Tan added that the amount the borrower needs to repay is generally less than the actual amount owed, and once the person meets his financial obligations under the DRS, he can start afresh.

While a borrower does not have to repay the full amount owed, MinLaw noted that there is no guarantee he will get a huge discount off the debt. 

A discount of up to 70 per cent would be considered a huge discount, it said.

In spite of a lighter debt burden, some debtors under the DRS will still fail to complete their repayment plans.

If this happens, creditors can pursue the individual for any money owed them, including filing another bankruptcy application, Ms Tan said. 

There will also be borrowers deemed unsuitable for the DRS and they will be declared bankrupt.

Yuen Law associate director Tris Xavier noted that Singapore’s bankruptcy regime previously did not provide clear timelines for discharge from bankruptcy, with individuals sometimes remaining in that state for up to 20 to 30 years.

However, reforms enacted in 2016 provided clearer milestones for individual debtors to achieve, while taking into consideration a debtor’s personal circumstances.

“Our bankruptcy regime is moving towards more rehabilitation, with the amendments making the regime somewhat more focused on the debtor rather than the creditor,” Mr Xavier added.

First-time bankrupts can now get out of bankruptcy in three to seven years if they pay their target contribution in full. 

The target contribution is the total amount a bankrupt needs to pay during his time in bankruptcy. The amount is calculated with reference to a bankrupt’s individual circumstances, and not the total debt size he owes. It is typically equivalent to 52 monthly contributions for a first-time bankrupt.

Similarly, repeat bankrupts can be discharged within five to nine years if they pay their target contribution – 76 monthly payments – in full.

Bankrupts who pay their target contribution in full will have their names removed from public records after five years from the date of their discharge, while those who fail to do so will have their names on public records permanently.

Mr Xavier said bankruptcy should not be regarded as a way to get a discount on your debt. Instead, it ought to be seen as a financial rehabilitation tool and a chance to regain control of your financial and debt situation, particularly where interests and/or debts continue to mount despite your best efforts.

He cautioned that bankrupts cannot simply hide their assets and pretend that they can only pay a certain amount each month.

“Your assets are separate from your total contribution. If you have a car, you have to sell your car. If you have a private property, it will have to be realised for your creditors. By law, bankruptcy jurisdiction covers assets held overseas as well, so a debtor cannot simply squirrel monies in overseas savings accounts,” noted Mr Xavier.

Some debtors might also think they can transfer assets to their parents or a spouse to remove them from the pool of distributable assets, so creditors cannot get access to these assets, he said.

Mr Xavier highlighted that the court has the power to reverse such transactions even if they occurred before formal bankruptcy proceedings.

However, a bankrupt’s CPF savings are protected from creditors. But this does not apply if someone dies and leaves CPF funds to the bankrupt. This money will form part of the pool, which can be distributed among creditors.

Bankrupts face other constraints as well, including not being able to travel overseas without getting permission first from the trustee-in-bankruptcy, and they cannot manage a business or act as a director of a company.

A borrower in distress can consider other options even before he sinks deeper into debt and eventually bankruptcy. 

Mr Xavier said: “Talk to your creditors as early as you can. Be honest about the state of your financial affairs.”

Alternatively, Credit Counselling Singapore (CCS) runs a Debt Management Programme that works out a repayment plan that is presented to a person’s creditors. 

This involves negotiating for more affordable repayment terms, meaning longer tenure and lower interest payments, Ms Tan added.

If creditors approve the proposal, the debtor must pay the stipulated amounts to each individual creditor before the due date every month.

Ms Tan said the difference between the CCS’ Debt Management Programme and MinLaw’s DRS is that the debtor needs to pay back his debts in full under the CCS scheme, unlike the DRS, where the amounts repaid are less than the money owed.

However, the CCS programme means a debtor does not need to file for bankruptcy and his debt situation is private, with only CCS and Credit Bureau Singapore having a record, Ms Tan added. 

Once the debts are fully repaid, the person’s debt status will be removed from Credit Bureau Singapore’s records.

Ms Tan has advice for people before they go down the slippery slope of debt: Do not overspend and splurge using credit cards, personal loans or instalment plans. 

People should also pay their bills every month or they will incur charges of up to 27.9 per cent for credit card balances.

And don’t take up a new loan without knowing whether you can service it.

“It usually starts off with a small debt, then it grows and accumulates,” Ms Tan noted.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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