What it means to be trapped in bankruptcy
by Lorna Tan
On Sept 13, about 500 bankrupts will be taught money management in a three-hour seminar at Singapore Polytechnic.
Lecturers from its School of Business will focus on budgeting, managing credit and the cost of incurring credit-card debt.
According to the Insolvency and Public Trustee’s Office (Ipto), the programme started in 2001. It came about because a lack of financial management awareness is a key cause of bankruptcy.
It is compulsory for bankrupts to attend the seminar once during the course of their bankruptcy. The cost is about $53.50 per person, which covers the polytechnic’s administrative costs.
The bankrupt need not pay directly, as these costs are deducted from his estate in bankruptcy.
Ipto is planning to conduct two such seminars this year, up from once a year in the past.
Of late, there have been reports that more bankrupts now owe larger sums and more people under 30 are facing bankruptcy. From Jan 1 to April 24, 621 people owing about $224 million in total were made bankrupt. This means each had an average debt of $360,000.
What does it mean to be bankrupt?
Many are unaware that it comes with several restrictions on one’s personal freedom and that it has long-term consequences.
Here are some frequently asked questions about bankruptcy:
Q: What is the minimum debt level at which an individual can be made bankrupt by a creditor?
The level was raised from $2,000 to $10,000 in 1999. You might owe a bank less than $10,000, but you could still be made bankrupt if the aggregate amount of all the debts, which include credit card and car loans, held by you is $10,000 or more.
Q: When the Official Assignee (OA) seizes a bankrupt’s belongings, which personal and home items is he allowed to keep?
Section 78(2) of the Bankruptcy Act lists the property that is specifically excluded from being divided among a bankrupt’s creditors, being:
1) Property held by the bankrupt in trust for any other person;
2) The tools, if any, of his trade;
3) Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his family; and
4) Any property of the bankrupt that is excluded under any other written law.
You can make a case for why certain items should not be seized. As for those bought under hire purchase, they are likely to be repossessed by the vendors.
Q: How much of the bankrupt’s pay is he allowed to keep for the family’s monthly expenses and for paying his debt?
The bankrupt is allowed to support himself and his family.
Under Section 82, he is duty-bound to account for any money or property he receives after becoming a bankrupt. These include his income and, after allowing for a sum that is ‘reasonably necessary’ for him and his family’s maintenance, he is required to hand over anything in excess to the OA. This is for division among creditors.
The bankrupt is required to list his expenses in a Statement of Affairs and he should try to modify his lifestyle.
Subject to certain exceptions, property acquired by the bankrupt or that passes to him before his discharge from bankruptcy is also divisible among his creditors.
Q: I have been working for many years with a good record. Will my bankruptcy put my job in jeopardy?
Depending on the occupation, the regulations might require the termination of your services or redeployment to another job.
This is usually the case for those providing advice or executing transactions in the financial services industry.
Q: Will my employer be told of my bankruptcy?
In some jobs, you might be required to inform your
employer. Also, note that your bankruptcy will be advertised, so employers or third parties could find out from reading the newspapers, said Ms Lie Chin Chin, the managing director of law firm Characterist.
Q: Is my Housing Board flat safe from the reach of creditors?
Yes, unless you bought or refinanced it with a bank loan and the loan agreement provides for foreclosure in the event of bankruptcy.
The OA will not seize HDB residential properties owned by bankrupt Singapore citizens for distribution to creditors.
Q: I am heading for bankruptcy. Is it advisable to transfer my property or other assets to my family?
Once you are deemed unable to meet financial obligations, any action such as the one you mentioned might be deemed as an attempt to defraud creditors. Thus, the money might still be recoverable when you are made a bankrupt.
The period of tracing back can range from six months to as long as five years depending on the nature of the transfer, said lawyer Amolat Singh of Amolat Singh & Partners.
Q: Can I take a holiday overseas while I’m in bankruptcy?
You must seek the OA’s permission. The OA may require you to reveal who is paying your holiday expenses, said Mr Singh.
If you leave Singapore without approval, you can be jailed for up to two years or fined up to $10,000, or both.
Q: When and under what circumstances can an individual be discharged from bankruptcy? There is no automatic discharge and the timing depends on various factors, such as whether you have a proposed scheme to settle debts partially, if not wholly.
There are people who remain bankrupt for as long as two decades, and there are dissatisfied creditors who object to a discharge.
Q: Is it true that after three years, the OA may discharge you if you owe less than $500,000?
Under the Bankruptcy Act, the OA has been given an administrative discretion to issue a certificate discharging a person from bankruptcy, provided that:
1) The individual has been bankrupt for at least three years; and
2) The aggregate amount of his debts does not exceed $500,000.
Such a decision is subject to judicial review by the courts.
Q: What difficulties might I face from having been a bankrupt?
Credit Bureau Singapore, a commercial entity set up by the banks, will keep a record of your bankruptcy for six years. This will be given to banks if you apply for a credit facility after your discharge.
Banks could reject your applications for between three and five years after your discharge. You could find it hard to get a credit card or housing and car loans.
Public searches with Ipto on an ex-bankrupt’s record of bankruptcy will throw up the bankruptcy for up to six years after the bankrupt’s discharge.
CHECKING OUT YOUR FINANCIAL HEALTH
How able are you to fork out cash in an emergency?
Calculate your liquid assets to net worth ratio. This is your cash or near-cash divided by your net worth.
Liquid assets include money you have in the bank, shares and unit trusts, while net worth is all your assets, including house and car, minus all your liabilities like housing loans.
Rule of thumb: The ratio should be 15 per cent or more.
The ratio indicates how easy it would be for you to convert your assets to cash in the event of an emergency.
However, Mr Ben Fok, the chief executive of Grandtag Financial Consultancy, pointed out that a higher ratio is not necessarily good in all cases.
This is because cash or near-cash does not generate good returns in the long run relative to what you would get if you invested the money in less liquid assets like property.