Can a Bankrupt Sell or Deal With His/Her Assets?

Have you ever wondered what happens to one’s assets once they are declared bankrupt? More specifically, can a bankrupt continue to sell or deal freely with their assets like they used to before being declared bankrupt? This article aims to answer this crucial question. It will discuss:

• What it means to be a bankrupt in Singapore
• What are considered bankrupt’s assets
• Whether a bankrupt can sell or deal with their assets
• Which assets are protected from creditors
• What happens to the proceeds obtained from selling protected assets
• What happens to any assets not sold/dealt with

What Does It Mean to be a Bankrupt in Singapore? 

In Singapore, becoming bankrupt means being unable to repay any debt of at least $15,000. This applies to both individuals and companies. Once a person or an organisation is declared bankrupt, their assets are vested in a trustee appointed by the General Division of the High Court, and this trustee will manage the bankrupt’s financial matters.

Note that there are two types of trustees:

1. The Official Assignee; and
2. The private trustee.

All bankruptcy cases are usually handled by the private trustee, except for cases which involve public interest and where the Official Assignee agrees to be appointed as the trustee in bankruptcy. Both types of trustees have the same responsibilities (discussed below), but private trustees are subject to an annual review by the Official Assignee.

What are Considered Bankrupt’s Assets? 

Generally, a bankrupt’s assets constitute anything of value belonging to them when a Bankruptcy Order is made, assets obtained after the order is made and gifts received before their discharge from bankruptcy. Examples of assets include private property and vehicles.

However, some specific assets are protected from creditors and these will be explained below.

As a Bankrupt, Can I Sell or Deal With My Assets? 

First, “dealing” with assets is a general term encompassing a wide range of actions that can be taken with regard to the assets. These could include transferring the assets to another party, pledging them as security for a loan, or even dissipating them entirely. On the other hand, “selling” the assets is a specific form of “dealing” in which you transfer ownership of your assets in exchange for money.

Generally, a bankrupt cannot sell or deal with any of their assets — these will be done by the trustee instead. As mentioned above, a bankrupt’s assets are vested in a court-appointed trustee, who will handle the bankrupt’s financial affairs by selling their assets and distributing the proceeds to the relevant creditors in order to help the bankrupt clear their debts. A trustee will also take on other responsibilities, such as evaluating the bankrupt’s earning potential and the amount required to support the bankrupt and their family.

However, as stated earlier, there are certain types of assets that are protected from creditors, meaning that the trustee will not take over those assets and a bankrupt can still sell or deal with them.

What Types of Assets are Protected From Creditors? 

Protected assets include the following:

• Housing and Development Board (HDB) flats: If at least one owner of an HDB flat is a Singapore citizen, that HDB flat will be protected from creditors and the trustee cannot take over the flat. However, you will still be required to service your bank/HDB housing loans even after being declared bankrupt (the bank/HDB can sell your flat if you default on payments). Additionally, as long as one of the owners of the flat is a Singapore citizen, a bankrupt can sell the HDB flat if they wish to without having to seek the trustee’s consent. For more information on dealing with an HDB flat in bankruptcy, do refer to our article on HDB FAQs for Bankrupts.
• Central Provident Fund (CPF) funds: A bankrupt’s CPF monies are protected from creditors. Therefore, a bankrupt can withdraw funds from their CPF savings account for their personal use if they have reached the age of 55 and have a certified medical condition resulting in a reduced life expectancy. For example, if a bankrupt person wishes to use their CPF savings to pay for their child’s tertiary education, they may do so under the CPF Education loan scheme as long as they have the available withdrawal limit. However, if a bankrupt wishes to use their CPF savings to purchase private property during their bankruptcy, they will need to obtain the trustee’s consent first.
• Property held on trust for someone else: If a bankrupt is holding property on trust for someone else, that property is protected against creditors because trust assets cannot be used to settle claims from creditors. Additionally, life insurance policies that a bankrupt holds in express trust for the benefit of their spouse and/or children are protected from creditors.
• Necessities: Daily living necessities such as household furniture and personal effects cannot be claimed by creditors. Additionally, limited tools of trade that are necessary for a bankrupt to make a living may be protected from creditors. For example, if the bankrupt owns a manufacturing business, they might require specific items of machinery to produce their goods and carry on their trade. Hence, such machinery would be protected from creditors.
• Compensation: Compensation awarded to the bankrupt for legal action with regard to personal injuries or wrongful acts against him/her are protected from creditors.

What Happens to the Proceeds Gained From the Protected Assets I Have Sold?

If a bankrupt decides to sell assets that are protected from creditors (e.g. their HDB flat that is owned by at least one Singapore citizen or life insurance policies previously held in express trust for their spouse/children), he or she can generally keep the proceeds arising from the sale of such assets.

If a bankrupt wishes to, he/she can then use all or part of the sale proceeds to offer a debt settlement proposal to creditors for his/her discharge from bankruptcy. The trustee may assist with such proposal.

What Happens to Any Assets Not Sold or Dealt With? 

Assets that are vested in the trustee during bankruptcy continue to vest in the trustee and do not get revested in the bankrupt, even after their discharge from bankruptcy.

Assets acquired by a bankrupt during bankruptcy will also continue being a part of the bankruptcy estate. Hence, the trustee will take over the monies if these assets are converted into cash following a bankrupt’s discharge from bankruptcy. These could include proceeds from the sale of a property and payouts from an insurance policy.

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To conclude, a bankrupt generally cannot sell or deal with their assets because a trustee will take charge of the bankrupt’s assets. However, as detailed above, there are certain assets that are protected from creditors and will not be taken over by the trustee, and the bankrupt can keep the proceeds arising from the sale of such assets unless creditors hold security over them.

If you require further information or more detailed advice on bankruptcy matters, you may wish to consult a bankruptcy lawyer. A bankruptcy lawyer would be able to assess the unique circumstances of your case, determine whether you should file a bankruptcy application and inform you of your obligations under bankruptcy law while coming up with a plan that best protects your interests.

You can kickstart your search for a bankruptcy lawyer that best suits your needs using our Find a Lawyer service.