Bankruptcy is an unfortunate reality that some of us may have to face one day. Whether it comes from carelessness, misfortune, or business failure, bankruptcy can affect your life and create a whole host of worries for you.
One of the main worries will be that of housing, as you would already be facing financial difficulties. And if you are somehow in a situation where you need to buy a new home when bankrupt (for instance, in case of divorce or eviction), your situation can only become even more alarming.
If you are unfortunate enough to be placed in such a situation, here's a simple rundown of what you can do in order to get an affordable new home to settle yourself in.
Related article: What Happens To Your Mortgage If You Lose Your Job?
What is Bankruptcy in Singapore?
Simply put, bankruptcy is a declaration that you are unable to pay all your debts, if they amount to at least $15,000. Bankruptcy can either be filed by you, or by your creditors.
Upon declaration of bankruptcy, the government appoints an Official Assignee (OA) to take charge of your assets and possessions, and the OA will liquidate them (leaving only your HDB flat, if you own one, as well as other protected assets) in order to pay back your creditors as much of what was owed as possible. If you have a job, you will also be required to make a set monthly contribution from your income to repay your debts and discharge your bankruptcy.
As an undischarged bankrupt, you will be restricted from many activities, for example:
You will not be able to borrow more than $500 from a creditor unless you inform them you are a bankrupt
You may not leave Singapore unless your OA allows it
You cannot take legal action against someone except in the case of personal injury or divorce unless your OA allows it
You may not manage a business or be a company director unless your OA or the court approves it.
You may not be appointed as a trustee or a personal representative for anyone unless a court allows it
But most relevantly for this article, being a bankrupt also narrows your options for buying property in Singapore.
As an Undischarged Bankrupt, What Property Can I Buy?
Being a bankrupt does not stop you from buying property, but it does restrict the kind of property you can buy. You will only be allowed to buy a single HDB flat, of maximum 4-room size, to accommodate you and yours. No other property type, or larger HDB flat, will be permitted to you unless you obtain your OA's permission—which will require proof of both the means to pay for it, as well as the need for such a large or expensive property. You will also need your OA's permission even for flats that are 4-room or smaller, if the flat's price is above $500,000.
How Can I Finance My HDB Flat?
More important than getting a new flat, you will also need to know how to pay for that flat. As a bankrupt, your cash assets will likely already have been seized by the OA. With only your CPF remaining to you as a protected asset, you will have to pay for your new home loan via CPF savings.
As an undischarged bankrupt, you can still obtain an HDB concessionary loan to pay for your flat, as long as you fulfil the eligibility criteria for a HDB loan. This will permit you to make the downpayment and pay off the instalments via CPF.
Apart from a HDB loan, you can also explore trying for a bank loan, however, the truth is that chances are relatively remote. As a bankrupt, banks are usually unwilling to lend you money in such situations, even if you have CPF savings to pay for the loan and have income. Furthermore, you would also need the approval of your OA to even explore this route.
Bank loans would also be ruled out for you if you urgently need to get a new home, because the rule is that at least 5% of your home loan must be paid in cash. Even assuming you could get approval from OA and any bank, you still need to have cash on hand—meaning you will not be able to immediately purchase a property, but will rather need to save for some time.
In a complicated situation like this, you will need to plan and search carefully to know what doors are open to you, and what is practicable in your case. Seeking free, expert assistance and one-stop knowledge from our Home Finance Advisors at PropertyGuru Finance can help you chart the way forward, as well as find and apply for the best mortgage for your situation.
Regardless of how you finance your new flat, you must be careful to ensure you are able to pay for the instalments regularly and on time, as even protected HDB flats can be lost if you repeatedly fail to make your payments for more than three months.
What if I Already Own a Home?
If you are a current homeowner of a HDB flat there is little possibility that your home will be seized. However, in the event of bankruptcy, it might be an option for you to switch to a CPF repayment scheme instead to ensure that you continue to make your payments on time. There are also financial assistance measures put in place to protect Singapore citizens who are going through this situation, which would be made available to you in the event.
However, if your house is not sustainable in your current financial hardship, you may also want to consider selling your house and switching to a smaller, more sustainable property. You can pick a smaller option with a more reasonable repayment scheme and think about upsizing again someday after you get your financial situation back on track.
Discharged from Bankruptcy? What's Next?
Once you have been officially discharged from bankruptcy, one of the things you may be interested in doing is to refinance your mortgage to get a better deal, especially if you are on a HDB loan and want to take advantage of more competitive rates in the private market. However, you may have to wait a little longer to do this; banks prefer to approve bankrupts who have been discharged at least 2 years.
If you are in a similar situation, don’t be disheartened. There may be other strategies one can adopt, and we recommend consulting one of our Home Finance Advisors. They have access to the all the mortgage packages and information provided by major banks and institutions in Singapore, and can help ensure you have explored all possibilities.
Whether or not you refinance or stick to your current home loan, the most important thing is to spend and save prudently! Avoid a repeat of the previous ordeal, and ensure that the future of your home, and you, are both kept safe.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
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