Explainer: What's Behind Singapore's Nearly 4,000 Bankruptcy Cases in 2023

Whether you're buying a home, getting a car loan, or even building your financial portfolio, having credit nowadays is practically a necessity — although not automatically advantageous. From unexpected emergencies, overspending, to underemployment, people who aren’t able to manage their credit find themselves trapped in debt that often leads to bankruptcy.

During the pandemic-stricken period, many businesses around the world struggled financially; Singapore was not exempted. Its economy slowed down and impacted export-led sectors (food services, construction, retail), housing costs, and inflation.

To alleviate the financial strain among business owners, the Singapore government provided financial support through its Temporary Bridging Loan Programme, the Enterprise Financing Scheme – SME Working Capital Loan, the Enterprise Financing Scheme – Trade Loan, and the Loan Insurance Scheme. These programmes served as a temporary relief against legal repercussions for businesses that were unable to fulfill certain contractual obligations due to budgetary woes.

In Singapore, bankruptcy can be initiated when an individual can prove their inability to pay off their debts of more than S$15,000 or when formal legal proceedings are filed against the debtor, as outlined by the Ministry of Law Insolvency Office (MinLaw). Moreover, there is also a deposit fee worth S$1,850 for filing bankruptcy with the Official Assignee (OA) to administer the debtor’s estate.

Why People File for Bankruptcy

You can volunteer to file for bankruptcy in Singapore when you could no longer afford to repay debts in full. Individuals or corporations may declare bankruptcy to freeze debts from increasing because of the piling up of interest charges. Doing this would also help you pay lower monthly fees sans a lawsuit threat.

Your credit score, however, will be affected by filing for bankruptcy and you will not be allowed to leave Singapore without permission from the OA or a private trustee in bankruptcy.

Singapore Debt Situation

Singapore’s financial landscape has witnessed a surge in personal bankruptcy applications, with an 18-year high in 2023, reaching a total of 3,986 insolvencies. Although there was a rise in bankruptcy applications, Tan underscored that not all resulted in bankruptcy orders, with only 1,096 bankruptcy orders made. There is also an increase in the number of companies in compulsory liquidation at 273 in 2023 versus 257 in 2022.

“The trend of bankruptcy orders has been largely stable over the recent years, and it’s also below pre-COVID levels,” Minister of State for Trade and Industry Alvin Tan said in a Parliament sitting on Feb. 7.

Tan emphasised that the overall debt situation in the city-state “remains manageable” for both individual and corporate insolvencies in 2023. The factors that contributed to the increase in bankruptcy applications are the complexities in macroeconomic and financial sectors, coupled with the spike in global interest rates that pushed the domestic interest rates to rise. Consequently, a high number of businesses and individuals had no choice but to borrow funds and continue loan servicing.

According to a report by Channel News Asia on Oct. 2023, small- and medium-sized enterprises (SMEs) and start-ups were among the most affected by the increase in interest rates. These enterprises struggled to repay loans that affected their cash flow and investment decisions.

On the other hand, the Monetary Authority of Singapore’s stress tests indicate that “most corporate and household borrowers have adequate buffers to manage shocks to income and financing costs,” Tan said.

Bankruptcy Education

Singapore’s national financial education programme, Money Sense, is designed to educate the public about financial literacy, encompassing debt and money management, and prudent strategies to avoid bankruptcy pitfalls.

Recognising the insights of Yip Hon Weng during the Parliament sitting, Tan advises consumers to avoid excessive spending, and when borrowing money, it is best to prioritise settling high-interest debts like credit card bills.

For distressed borrowers, you may seek help through Credit Counselling Singapore that offers expert debt management guidance. Alternatively, if you’re struggling to pay off unsecured debts to financial institutions, it is recommended to sign up for a Debt Consolidation Plan for restructuring and consolidation of debts not exceeding S$15,000.