Alternatives for Bankruptcy

Advice For Creditors

Creditors should only commence bankruptcy proceedings after all avenues for recovering debts have been explored and proven unsuccessful. It is not an instant remedy for recovery of debts.

Here are some reasons why you should not rush to commence bankruptcy proceedings:

It is Costly
It is expensive to commence bankruptcy proceedings. A petitioning creditor has to pay:

• deposit of $1,600 with the Official Assignee ("OA") for the administration of the bankrupt's estate;
• legal costs and disbursements of the bankruptcy proceedings; and
• further litigation costs for recovery of bankrupt's assets, if necessary.

Full Recovery of Debts Unlikely
Unless the insolvent persons have assets that can be realised by the OA, full recovery of debts are unlikely in the vast majority of cases.

Loss of Interest
Interest on unsecured debts ceases to run upon the making of Bankruptcy Order. Secured creditors are not entitled to any interest on their debts after the making of the Bankruptcy Order if they do not realise their securities within 6 months from the date of the Bankruptcy Order.

Effect On Earning Capacity
Once a debtor is made insolvent, it may affect his earning capacity adversely and in turn his ability to settle his debts.

No Priority For Unsecured Creditors
Unsecured Creditors rank after secured and preferential creditors (such as, the Comptroller of Income Tax and CPF Board) in receiving dividends from bankrupts' estate. Unsecured creditors have to share the balance dividends, if any, equally amongst themselves.

Discharge by the Court and the OA
Insolvent persons cannot be held in individual insolvency perpetually until their debts are fully settled. For example, in cases where insolvent persons have done their best to make payments and have no assets, or are old, sick and unemployed, the court may, upon application by the OA, the insolvent person or any interested person, discharge the insolvent person. The OA may also in his discretion, issue certificates discharging insolvent persons who have been in individual insolvency for more than 3 years, and their debts do not exceed $500,000, and the conduct of the insolvent persons have been good during the period of insolvency. A discharge by the court or by certificate issued by the OA, releases an insolvent person from all debts provable against him save for a few exceptions. Creditors would not be able to pursue their claims against the insolvent person any further.

So What Are The Alternatives For Creditors?

Private Arrangements
You should discuss with him his financial problems and work out arrangements for repayment of debts. This will also encourage him to find ways to settle your claim and avoid legal proceedings. Debtors who are entrepreneurs would also have a fair chance to pull themselves around.

Consider Debtor's Proposal On Voluntary Arrangement
If your debtor applies to court to make a proposal for voluntary arrangement under Part V of the Bankruptcy Act, you should participate in the creditors' meeting to consider the proposal. A voluntary arrangement is essentially a formal arrangement between the debtor and his creditors in respect of repayment of debts.

The debtor has to disclose his assets and liabilities, and propose ways of settling his debts. If the voluntary arrangement is accepted by creditors and implemented successfully, it will benefit both creditors and debtor. If not, the debtor runs the risk of bankruptcy.

Advice For Debtors

Do not ignore your creditors' letters of demand and statutory demands, or writs of summons from the court. This will only compel the creditors to commence bankruptcy proceedings against you. You can be made an insolvent person even if you refuse to respond to your creditors or accept service of legal documents.

Here are some reasons why you should avoid bankruptcy:

• social stigma on being declared a bankrupt;
• your assets become vested in the OA and divisible among creditors;
• statutory requirement to file statements of affairs and income and expenditure statements, and thorough investigations by the OA into bankrupts' financial affairs;
• monthly payments to bankruptcy estate for the benefit of the creditors;
• disclosure of bankruptcy if obtaining credit of more than $500 from others;
• restriction on overseas travel; and
• inability to manage business or act as director of companies without approval of court / Official Assignee.

So What Are The Alternatives For Debtors?

Private Arrangements
Enter into private arrangements with your creditors to pay debts by instalments, or to reschedule your repayments, or to give you extension of time to liquidate assets or seek other financial sources to repay your debts.

Inform your creditors truthfully and completely of your latest financial position. Provide information and documentary evidence readily to prove your current financial position.

Do not make empty promises after you have entered into alternative repayment arrangements. You must make serious efforts to keep to the new repayment arrangements.

Propose Voluntary Arrangement
Besides private arrangements, you may also apply to court for an interim order for voluntary arrangement under Part V of Bankruptcy Act. You must disclose your assets and liabilities, and make proposal on how you intend to settle your debts with various creditors. If your proposal is accepted by creditors and implemented successfully, it would benefit both you and your creditors.

Court Dispute Resolution
If you are being sued by your creditors in civil proceedings, you may negotiate for a settlement on repayment of debts and thereby avoid bankruptcy in due course.

Seek Oral Legal Advice
This information sheet is by no means exhaustive on bankruptcy matters. You may wish to consult your solicitor carefully before making any decision concerning bankruptcy matters. If you are unable to engage a solicitor, you may obtain oral legal advice from the Legal Aid Bureau, at the following address:

The URA Centre, East Wing
45 Maxwell Road, #08-12, Singapore 069118
Tel: 1800-3251424