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A Guide to Bankruptcy: What You Need To Know, and How To Get Through It

According to Channel News Asia, personal bankruptcy applications reached an 18-year high of almost 4,000 in 2023. Facing bankruptcy can feel like hitting rock bottom, but it does not have to define your future.

With the right mindset and actions, you can rebuild your life and financial stability. Read on for essential steps to guide you through the process.

What does bankruptcy in Singapore mean?

Bankruptcy is a formal acknowledgment that you are unable to settle all your debts, provided they total at least S$15,000. It can be initiated either by you or by your creditors.

Once bankruptcy is declared, the government appoints an Official Assignee (OA) to manage your assets and belongings. The OA will sell off these assets, with exceptions like your HDB flat and other protected assets, to reimburse your creditors to the best extent possible. Additionally, if you are employed, you will be obligated to make a predetermined monthly contribution from your income to repay your debts and ultimately exit bankruptcy.

To look at it from a different perspective, becoming a bankrupt can actually mark a fresh beginning for your financial journey. It presents a valuable chance to cultivate new financial habits. Here is how you can get a fresh start.

Step 1: Assess the situation honestly and accept it

The first crucial step to moving forward is to honestly assess your situation and accept it. Denial or avoidance will only prolong the process of recovery. Embrace the reality of your financial circumstances and acknowledge that bankruptcy is a part of your past, not your future.

Step 2: Be informed of the consequences of bankruptcy

Understanding the consequences of bankruptcy is vital for making informed decisions and planning for the future.

In Singapore, bankruptcy typically spans a duration of three years, though this timeframe can be prolonged if the individual fails to meet their obligations or engages in dishonest behaviour with the OA. Throughout the bankruptcy period, various restrictions are enforced on the individual. This includes limitations on accessing credit, operating a business, and travelling without authorisation from the OA.

After successfully completing the bankruptcy period and the fulfilment of all responsibilities, the individual is discharged from bankruptcy, thereby repaying most of their outstanding debts. However, should the bankrupt individual fail to cooperate or adhere to the OA’s directives, the bankruptcy period may be extended beyond three years. Conversely, bankruptcy may be annulled if all debts are fully settled or under exceptional circumstances.

Some other key repercussions also include:

a. Higher personal loan interest rates

Expect higher interest rates on personal loans as lenders perceive you as a higher risk borrower. However, this does not mean that you cannot secure a loan after bankruptcy. You can consider the following:

Guarantor loans

This option usually involves a third party – typically a family member or friend – to offer their guarantee for the loan, offering an extra level of security for the lender.

Secured loans

By offering collateral, such as a home or vehicle, borrowers may find lenders more inclined to approve loans, given the mitigated risk involved.

Licensed loan providers 

These entities often have lending criteria that are more adaptable than those of conventional banks, offering possible avenues for individuals with a history of bankruptcy.

Post-bankruptcy personal loans

Certain authorised loan providers offer personal loans tailored for individuals with a bankruptcy background. Although the interest rates may be elevated, these loans can serve as a pathway to rebuilding credit.

b. Housing limitation & mortgage loan wait period

Being declared bankrupt does not prevent you from purchasing property, but it does impose limitations on the type of property you can acquire. You are permitted to buy only a single HDB flat, with a maximum size being a 4-room unit, to accommodate yourself and your family. Any other property type or larger HDB flat requires permission from your OA, which necessitates evidence of both financial capability and necessity. Even for flats that are smaller than a 4-room unit, permission from the OA is required if its price exceeds S$500,000.

Additionally, discharged bankrupts may have to wait a minimum of two years before being eligible for a mortgage loan (subject to bank’s approval).

c. Affected credit score

A diminished credit score reflects the individual’s inability to meet their financial obligations and signals to lenders that they are high-risk borrowers. As a result, obtaining credit, loans, or other forms of financial assistance becomes exceedingly challenging.

The negative impact on the credit score persists throughout the bankruptcy period and may continue even after discharge. Rebuilding a favourable credit score post-bankruptcy requires diligent effort, responsible financial management, and time to demonstrate improved creditworthiness.

Step 3: Rebuild your life

Recovery from bankruptcy requires diligent effort and commitment. Here is how you can start rebuilding your life:

  • Develop a budget: Create a realistic budget to manage your expenses and prioritise debt repayment. Here are some quick and powerful tips to clear your debt quickly. If Excel sheets and manually jotting down your expenses is too tedious, why not try out the Planner Bee app?
  • Build an emergency fund: Save money for unexpected expenses to prevent further financial setbacks. When it comes to an emergency fund, there is no one-size-fits-all approach. Calculate how much you would need with our Emergency Fund Calculator.
  • Ensure basic insurance coverage: Protect yourself from unforeseen medical costs by having essential insurance coverage. Find out what type of insurance you need, whether it is general insurance or life insurance.
  • Rebuild your credit: Start rebuilding your credit by using secured credit cards or small loans responsibly and making timely payments.
  • Explore financial education resources: Equip yourself with knowledge about personal finance to make informed decisions and manage your finances effectively.
  • Establish achievable goals: Set achievable financial goals to stay motivated and track your progress.
  • Seek professional guidance: Consider consulting a financial advisor or credit counsellor for personalised advice and assistance. If you need counselling support or therapy to aid your mental health, consider trying these 5 free mental health apps.
  • Stay persistent and positive: Rebuilding after bankruptcy takes time and effort. Stay persistent, maintain a positive outlook, and celebrate small victories along the way.

By following these steps and staying committed to your financial recovery, you can restart your life after bankruptcy and build a brighter financial future. Remember, setbacks are just opportunities for growth and resilience if you approach them well.

Read more: Everything You Need To Know About the Debt Repayment Scheme

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