The Bankruptcy Amendment Bill that was passed in July is an important step in the reform of the bankruptcy regime in Singapore. Currently, bankrupts face an uncertain future, as there are no fixed rules for discharge. Discharge is done generally on a case-by-case basis, either on agreement of the creditors, by the High Court, or by the Official Assignee. Given the social stigma and the restrictions on lifestyle and financial affairs, it is easy for bankrupts to despair without a clear idea of when they can be discharged. It is a waste, because given more certainty and hope, bankrupts can be incentivised to repay more of their debts and subsequently plan for restarting their lives.
The new amendments are not in force yet, but when they do, they promise more certainty for bankrupts. There is a notable shift in approach towards the rehabilitation of bankrupts back into society, as compared to the more punishing regime in place now. This is in line with the approach taken by other developed nations. A summary of the new amendments:
Discharge at fixed points
The framework introduces a regime where bankrupts can be discharged at fixed exit points. First-time bankrupts will generally be eligible for discharge in five to seven years, if they succeed in paying a “Target Contribution”. The Target Contribution is determined based on the bankrupt’s earning potential. This is equivalent to 52 monthly contributions. Bankrupts who do not meet the Target Contribution will only be eligible for discharge after 7 years.
Repeat bankrupts will generally be eligible for discharge in seven to nine years. The Target Contribution of repeat bankrupts will be 76 payments of monthly contributions.
Clarity over bankruptcy records
To encourage bankrupts to meet their Target Contribution, bankrupts who pay their Target Contribution in full will have their names and particulars removed from the bankruptcy register five years after discharge. Those who fail to pay their Target Contribution in full prior to discharge will have their records kept permanently on a publicly available register, giving them potential challenges in obtaining credit.
Raising of minimum debt for bankruptcy
As part of the amendments, the minimum debt before one can be made a bankrupt has been raised from $10,000 to $15,000. This is to take into account inflation. Practically, it seeks to reduce the number of people who make use of the bankruptcy framework and saves resources for larger amounts.
Institutional creditors to appoint private trustees
Institutional creditors will be required to appoint private trustees to administer the bankruptcy when applying to make a debtor bankrupt. Currently, bankruptcies in Singapore are administered by the Official Assignee, which means that the government is footing the bill. The point of the amendment is to shift the financial burden of administering a bankruptcy back to the institutional creditors who are seeking bankruptcies. It may make institutional creditors more careful about bankruptcies, since they now have to foot the bill themselves. The Official Assignee will continue to handle bankruptcy cases brought about by individuals and small businesses.