How able are you to repay the debt?
Calculate your debt to asset ratio. This is your total debt divided by total assets. Assets include your property and car.
Rule of thumb: The ratio should be below 50 per cent. The ratio is used to assess your debt level. The lower the ratio, the less borrowing one has.
How far can your assets decline before you become insolvent?
Work out your solvency ratio. This is total net worth divided by total assets. Total net worth is calculated from total assets minus liabilities.
Rule of thumb: The ratio should be 40 per cent or more. The lower the ratio, the greater the probability that you will default on your debt obligations and be made bankrupt.
Can you afford to take on more debt?
Work out your debt service ratio. This is your total annual debt repayment divided by your annual take-home income.
This will determine the proportion of net income which is used to make regular payment of debts. This is an important ratio to consider when you want to add on more liabilities.
Rule of thumb: The ratio should be 35 per cent or less.
The ratio will indicate whether you have enough take-home pay to service your debt repayment, said Mr Fok.
Here are some frequently asked questions about bankruptcy:
Q: What is the minimum debt level at which an individual can be made bankrupt by a creditor?
The level was raised from $2,000 to $10,000 in 1999. You might owe a bank less than $10,000, but you could still be made bankrupt if the aggregate amount of all the debts, which include credit card and car loans, held by you is $10,000 or more.
Q: When the Official Assignee (OA) seizes a bankrupt’s belongings, which personal and home items is he allowed to keep?
Section 78(2) of the Bankruptcy Act lists the property that is specifically excluded from being divided among a bankrupt’s creditors, being:
1) Property held by the bankrupt in trust for any other person;
2) The tools, if any, of his trade;
3) Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his family; and
4) Any property of the bankrupt that is excluded under any other written law.
You can make a case for why certain items should not be seized. As for those bought under hire purchase, they are likely to be repossessed by the vendors.
Q: How much of the bankrupt’s pay is he allowed to keep for the family’s monthly expenses and for paying his debt?
The bankrupt is allowed to support himself and his family.
Under Section 82, he is duty-bound to account for any money or property he receives after becoming a bankrupt. These include his income and, after allowing for a sum that is ‘reasonably necessary’ for him and his family’s maintenance, he is required to hand over anything in excess to the OA. This is for division among creditors.
The bankrupt is required to list his expenses in a Statement of Affairs and he should try to modify his lifestyle.
Subject to certain exceptions, property acquired by the bankrupt or that passes to him before his discharge from bankruptcy is also divisible among his creditors.
Q: I have been working for many years with a good record. Will my bankruptcy put my job in jeopardy?
Depending on the occupation, the regulations might require the termination of your services or redeployment to another job.
This is usually the case for those providing advice or executing transactions in the financial services industry.
Q: Will my employer be told of my bankruptcy?
In some jobs, you might be required to inform your employer. Also, note that your bankruptcy will be advertised, so employers or third parties could find out from reading the newspapers, said Ms Lie Chin Chin, the managing director of law firm Characterist.
Q: Is my Housing Board flat safe from the reach of creditors?
Yes, unless you bought or refinanced it with a bank loan and the loan agreement provides for foreclosure in the event of bankruptcy.
The OA will not seize HDB residential properties owned by bankrupt Singapore citizens for distribution to creditors.
Q: I am heading for bankruptcy. Is it advisable to transfer my property or other assets to my family?
Once you are deemed unable to meet financial obligations, any action such as the one you mentioned might be deemed as an attempt to defraud creditors. Thus, the money might still be recoverable when you are made a bankrupt.
The period of tracing back can range from six months to as long as five years depending on the nature of the transfer, said lawyer Amolat Singh of Amolat Singh & Partners.
Q: Can I take a holiday overseas while I’m in bankruptcy?
You must seek the OA’s permission. The OA may require you to reveal who is paying your holiday expenses, said Mr Singh.
If you leave Singapore without approval, you can be jailed for up to two years or fined up to $10,000, or both.
Q: When and under what circumstances can an individual be discharged from bankruptcy? There is no automatic discharge and the timing depends on various factors, such as whether you have a proposed scheme to settle debts partially, if not wholly.
There are people who remain bankrupt for as long as two decades, and there are dissatisfied creditors who object to a discharge.
Q: Is it true that after three years, the OA may discharge you if you owe less than $500,000?
Under the Bankruptcy Act, the OA has been given an administrative discretion to issue a certificate discharging a person from bankruptcy, provided that:
1) The individual has been bankrupt for at least three years; and
2) The aggregate amount of his debts does not exceed $500,000.
Such a decision is subject to judicial review by the courts.
Q: What difficulties might I face from having been a bankrupt?
Credit Bureau Singapore, a commercial entity set up by the banks, will keep a record of your bankruptcy for six years. This will be given to banks if you apply for a credit facility after your discharge.
Banks could reject your applications for between three and five years after your discharge. You could find it hard to get a credit card or housing and car loans.
Public searches with Ipto on an ex-bankrupt’s record of bankruptcy will throw up the bankruptcy for up to six years after the bankrupt’s discharge.
Full extraction from Sunday Straits Times 30th June 2008 for collection purposes
