Bankruptcy & How to Rebuild Your Credit Score in Singapore
As unpaid credit card bills, overdue personal loan repayments, or business failures pile up, one becomes increasingly susceptible to bankruptcy. By then, your credit score may have taken a serious beating, making it challenging to recover financially. But, all is not lost â take it one step at a time. Hereâs what you need to know about bankruptcy in Singapore, rebuilding your credit score, and more.
Disclaimer: This page is intended for educational purposes only and should not be taken as formal legal or financial advice. For specific guidance, please consult a qualified legal or financial professional.
Understanding Bankruptcy in Singapore: What is Bankruptcy?
Although bankruptcy is often viewed as the ultimate financial failure, it can sometimes be the most sensible or appropriate course of action to take. However, itâs still a significant decision nonetheless, and should not be taken lightly. So before considering filing for bankruptcy, itâs pertinent to fully understand how the process works and what legal implications it may have for you and your loved ones.
In Singapore, a debtorâwhether an individual or firmâis a party who owes a sum of at least $15,000 to another party, the creditor. In which case, the former may be declared bankrupt by the High Court (General Division).
Filing for bankruptcy can happen in two ways: voluntary and involuntary. Voluntary bankruptcy occurs when you file for a bankruptcy application yourself. Conversely, involuntary bankruptcy occurs when creditors file a bankruptcy against a debtor owing them money.
Furthermore, bankruptcy typically lasts for three years in Singapore but may be extended if the debtor fails to meet their obligations or is found dishonest or non-compliant with the private trustee or Official Assigneeâs instructions.
Before considering bankruptcy as a last resort, it is important to explore alternative options first.
Other Alternatives to Bankruptcy
Besides declaring bankruptcy, there are still other options to repay your debt.
Private Arrangement
A debtor may try to inform their creditors of their current financial position and negotiate with them to reach a formal agreement on debt repayment. This could entail paying debts in instalments or scheduled payments and requesting time extensions to sell assets. The court does not have to be involved here.
Debt Repayment Scheme
Although determined during a bankruptcy hearing, the court may assess your eligibility for a pre-bankruptcy scheme called the Debt Repayment Scheme (DRS). This option is designed to help debtors with debts not more than $150,000 avoid bankruptcy by following a structured repayment plan.
If deemed eligible, the bankrupt application will be withdrawn and youâll need to fulfil your duties as a debtor. However, if youâre deemed ineligible, another hearing will be scheduled for the bankruptcy application.
Note: A debtor cannot independently register or apply for a DRS. It can only be initiated when a bankruptcy application has been filed against you in the General Division of the High Court, either by yourself or your creditor.
If deemed eligible, the bankrupt application will be withdrawn and youâll need to fulfil your duties as a debtor. However, if youâre deemed ineligible, another hearing will be scheduled for the bankruptcy application.
Note: A debtor cannot independently register or apply for a DRS. It can only be initiated when a bankruptcy application has been filed against you in the General Division of the High Court, either by yourself or your creditor.
What Happens After Declaring Bankruptcy? Legal Implications of Bankruptcy in Singapore
After filing for bankruptcy, itâs important to stay optimistic, but we must acknowledge that life wonât be exactly the same. Bankruptcy inevitably results in some changes to your lifestyle and credit situation.
Disclosure of Financial Affairs
Once declared bankrupt, a debtorâs financial affairs will be managed by a court-appointed trustee. The debtor is expected to fully cooperate by disclosing all necessary financial information and assist in the liquidation of their assets.
Seizure of Assets & Property
Once the necessary financial records have been disclosed to the court and appointed trustee, the latter will administer the bankruptâs estate where the debtorâs property and assets will be seized. Thereafter, the assets will be sold and used to repay outstanding debts.
Credit Restrictions
A debtor must disclose bankruptcy status to the lender if applying for a credit or loan of at least $1,000. Thus, it stands to reason that securing loans, mortgages, or applying for credit cards becomes more challenging.
Employment Restrictions
A bankrupt individual may not hold certain public office positions, serve as a director in companies, or manage businesses, unless granted special permission. Additionally, a portion of their income will likely be deducted and paid forward toward their bankruptcy estate.
Travelling Restrictions
The debtor can only leave Singapore under the assigned trusteeâs permission.
Court Actions
Court actions cannot be started or continued without the trusteeâs approval.
However, this does exclude:Any action for damages in respect of any injury to the bankrupt, and any appeal arising from the action.
A matrimonial proceeding, and any appeal arising from the action.
However, this does exclude:
Can You Apply for Loans After Bankruptcy?
Contrary to popular belief, it is possible to apply for a loan after bankruptcy. However, your eligibility will depend on factors such as the time elapsed since filing and your current credit score.
Potential loan options include:
While itâs not impossible to apply for a personal loan on MoneySmart post-bankruptcy, traditional financial institutions like banks typically view bankrupt people as high-risk borrowers. As a result, they tend to be more hesitant and cautious about extending unsecured loans to them.
However, licensed moneylenders like Credible SG may recognise the need for financial assistance and offer specialised loans tailored for bankruptcy applicants, assessed on a case-by-case basis.
Post-bankruptcy personal loans often come with higher interest due to the lenderâs perception of increased financial risk. Reassess your financial stability to ensure you can comfortably meet repayment before applying for new credit.
Potential loan options include:
| Type of loan | What it is |
|---|---|
| Secured loans | Provide collateral such as a home or vehicle to reduce financial liability and convince loan providers to grant loan |
| Guarantor loans | Extra assurance when a third party, like a family member or friend, guarantees a loan |
| Licensed loan providers | Consult credit unions and alternative lenders with more flexible lending criteria compared to traditional banks |
| Post-bankruptcy personal loans | Special loans with higher interest designed for those with bankruptcy history |
While itâs not impossible to apply for a personal loan on MoneySmart post-bankruptcy, traditional financial institutions like banks typically view bankrupt people as high-risk borrowers. As a result, they tend to be more hesitant and cautious about extending unsecured loans to them.
However, licensed moneylenders like Credible SG may recognise the need for financial assistance and offer specialised loans tailored for bankruptcy applicants, assessed on a case-by-case basis.
Post-bankruptcy personal loans often come with higher interest due to the lenderâs perception of increased financial risk. Reassess your financial stability to ensure you can comfortably meet repayment before applying for new credit.
Need a Credible Loan Source?
With no processing or hidden fees, Credible.sg offers up to 6X your monthly income in personal loans.
Rebuilding Credit After Bankruptcy
After being declared bankrupt, this period is critical for demonstrating responsible financial behaviour. Compliance with your repayment schedule and adherence to your Official Assigneeâs instructions are essential. Failure to comply will significantly hinder your ability to rebuild your credit effectively post-bankruptcy.
Of course, this encompasses spending within your means too.
Of course, this encompasses spending within your means too.
In order to avoid falling back into the same debt cycle, avoid paying with credit facilities like loans or credit cards. Instead, rely on cash to pay off outstanding debts or if unavoidable, use credit with considerable caution.
Similar to traditional counselling, credit counselling services are available for those who have declared bankruptcy. These sessions offer post-bankruptcy guidance and planning to help individuals take informed steps towards financial recovery after being discharged from bankruptcy. Credit Counselling Singapore (CCS) is one such organisation providing such services.
Debt Consolidation Plans in Singapore: A Fresh Start
Debt consolidation plan (DCP) is a structured debt repayment programme in Singapore. It consolidates all outstanding debtsâlike credit cards or unsecured loansâunder one participating financial institution, usually a bank. Unlike the Debt Repayment Scheme (DRS), which is a pre-bankruptcy scheme designed to help individuals avoid bankruptcy, the DCP is only available after being discharged from bankruptcy.
To qualify for a DCP in Singapore, you must meet several conditions:
- Discharged from bankruptcy
- Have outstanding unsecured debts (e.g. credit card bills, personal loans) of at least $500, owed to at least two different financial institutions
- Monthly income between $1,500 to $6,000
- Be a Singaporean citizen or permanent resident, aged 21 or above.
But why opt for a DCP, and why only after bankruptcy discharge? While still declared bankrupt, your debts are still handled by either an Official Assignee or private trusteeâin which case, youâre still prohibited from taking on new debt or applying for credit.
However, once dischargedâtypically after 3 yearsâyou may be eligible to apply for a DCP on a clean slate. Essentially, a DCP consolidates your debts into a single loan with a lower interest rate over a longer repayment term (up to 10 years) to help you get back on your feet.
Best Debt Consolidations Plans to Consider in Singapore
- Interest rate: 4.5% p.a.
- Total Amount Payable: $34,050
- Processing fee: N/A
- Interest rate: 3.99% p.a.
- Total Amount Payable: $33,591
- Processing fee: N/A
- Interest rate: 3.48% p.a.
- Total Amount Payable: $33,132
- Processing fee: $199
- Interest rate: 3.58% p.a.
- Total Amount Payable: $33,222
- Processing fee: $99
- Interest rate: 4.5% p.a.
- Total Amount Payable: $34,050
- Processing fee: N/A
- Interest rate: 3.58% p.a.
- Total Amount Payable: $33,222
- Processing fee: $99
Tips for Long-Term Financial Stability
Tip #1
Adopt the 50/30/20 Rule
The 50/30/20 budget rule is a popular guideline for managing and prioritising your income. While itâs a flexible framework and can be adapted to personal circumstances, the breakdown is roughly as follows:
50% spent on needs. This includes essential expenses such as housing (mortgage or rent), utilities, groceries, transportation, insurance, and other fixed costs.
30% spent on wants. This covers discretionary spending on non-essential purchases or experiences like dining out, hobbies, entertainment, and more.
20% reserved for savings and investments. This is for building emergency funds, growing your savings for retirement, investing, and others for long-term financial growth.
Depending on your personal financial goals, some might prefer to reduce the apportioned spending on wants and instead, allocate more towards saving or investing more aggressively. This is especially pertinent if you want to accelerate your wealth-building post-bankruptcy.
Depending on your personal financial goals, some might prefer to reduce the apportioned spending on wants and instead, allocate more towards saving or investing more aggressively. This is especially pertinent if you want to accelerate your wealth-building post-bankruptcy.
Tip #2
Build Emergency Funds
Building a reliable emergency fund complements the 50/30/20 rule well by providing a financial safety net. Itâs generally recommended that every financially independent adult should aim to save at least 6 monthsâ worth of living expenses to cover unexpected situations like job loss, medical emergencies, or urgent repairs.
Overall, having an emergency fund will grant you greater stability and peace of mind, empowering you to navigate financial setbacks without derailing your long-term financial goals. For this, you could either use a high-yield savings account (e.g. HSBC Everyday Global Account) or a cash management account.
Overall, having an emergency fund will grant you greater stability and peace of mind, empowering you to navigate financial setbacks without derailing your long-term financial goals. For this, you could either use a high-yield savings account (e.g. HSBC Everyday Global Account) or a cash management account.
Tip #3
Automate Savings
If manually apportioning your monthly income to savings feels like a chore or you struggle with consistency/discipline, itâs recommended that you automate your savings. Setting up an automatic transfer (e.g. through GIRO) to transfer a fixed amount of money into your respective savings, cash management account, or portfolio each month removes the temptation of skipping or delaying contributions.
Not only does this simplify the savings process, but also ensure steady progress and reinforces your financial goals more effortlessly.
Not only does this simplify the savings process, but also ensure steady progress and reinforces your financial goals more effortlessly.
Frequently Asked Questions
What happens if you canât pay off your credit card debt?
- Failure to pay off credit card debt will result in a late payment fee of $100, with the outstanding balance accruing interest compounded daily. This will also negatively impact your credit score. If left unmanaged, your debt can escalate, and therefore lead to bankruptcy if exceeding $15,000.
Whatâs the best way to pay off credit card debt?
- Consolidating all your outstanding debts and analysing your cash flow will help you develop an appropriate debt repayment strategy like private arrangement, DRS, or DCP.
How to get discharged from bankruptcy in Singapore?
- Bankruptcy discharge can occur through automatic discharge, court application, or certificate of discharge by the OA.
Automatic discharge usually happens after 5 years (or 7 years for repeat bankruptcies). If not, you can apply to the High Court where several factors like extent of debt repayment, compliance, and creditor objections will be considered. Alternatively, your OA may also issue a Certificate of Discharge if substantial repayment and good conduct have been demonstrated. How to check bankruptcy discharge status in Singapore?
- You can contact the Insolvency and Public Trusteeâs Office (IPTO), check their online portal, verify with your OA, or check the public register.
Are bankruptcy cases public record?
- Yes, the IPTO maintains a public register of bankrupt individuals, accessible through its online portal of the Integrated Insolvency Management System (IIMS).
Do you need a lawyer to file bankruptcy?
- No, itâs not necessary. You can file for bankruptcy through a lawyer, but you can also file for bankruptcy yourself.
Can you file for bankruptcy during a divorce?
- Yes, a bankrupt can undergo divorce proceedings.
What are some effects of declaring bankruptcy?
- Refer to the legal implications above for details.
How much does it cost to file bankruptcy?
- Itâs estimated to cost at least $1,916 to file for bankruptcy. For the full fees, refer to the list here.
How long after bankruptcy can I get a credit card?
- Bankruptcy stays on your credit report for at least 5 years. While you can still apply for a credit card during this period, approval will be challenging due to your high-risk status.