Bankruptcy is an unfortunate reality that some may have to confront. In the first half of 2024, 2,334 people filed for bankruptcy, a 25% increase from the same period in 2023. In turn, the number of people who eventually declared bankruptcy increased, too.
If you unfortunately find yourself in such a situation, one of the main worries will be housing. Questions like "Can a bankrupt buy an HDB flat?" and "Can the bank seize my HDB flat" are common concerns.
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 concerns may be aggravated. Here’s what you can do to manage your living situation and how to get an affordable new home to settle in.
1. What Is Bankruptcy in Singapore?
In simple terms, bankruptcy is a declaration of your inability to pay all your debts when they total 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 to take charge of your assets and possessions, and the Official Assignee will liquidate them (leaving only your HDB flat, if you own one, as well as other protected assets) 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. You will also show up if someone performs an insolvency search in Singapore.
What Is an Insolvency Search in Singapore?
If you perform an insolvency search in Singapore through the search function on the Ministry of Law website, you can ascertain a person’s bankruptcy status.
For businesses, an insolvency practitioner is usually appointed to liquidate a business and sell off any assets to settle debt.
- You will not be able to borrow from a creditor unless you inform them you are in bankruptcy
- You may not leave Singapore unless your Official Assignee allows it
- You cannot take legal action against someone except in the case of personal injury or divorce unless your Official Assignee allows it
- You may not manage a business or be a company director unless your Official Assignee 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 relevant to this article, being bankrupt also narrows your options for buying property in Singapore. The next section addresses the question "Can a bankrupt person buy an HDB flat?"
2. Can a Bankrupt Buy an HDB Flat?
Being bankrupt does not prevent you from buying property, but it does restrict the kind of property you can buy. A common question is, "Can a bankrupt buy an HDB flat?" The answer is yes, but only of a certain size.
You will only be allowed to buy a single HDB flat of a maximum 5-room size. No other property type, or larger HDB flat, will be permitted to you unless you obtain your Official Assignee’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 Official Assignee’s permission even for 5-room or smaller flats if the flat’s price is above $500,000.
3. How Can I Finance My New HDB Flat While Bankrupt?
So the answer to "Can a bankrupt buy an HDB flat?" is yes. If you need to get a new home, the more important issue than getting a new flat is how to finance it.
As a person in bankruptcy, your cash assets will likely already have been seized by the Official Assignee. With only your CPF remaining as a protected asset, you must pay for your new home loan via CPF savings.
You can still obtain an HDB concessionary loan to pay for your flat if you fulfil the eligibility criteria for an 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. Banks are usually unwilling to lend money to those who are bankrupt, even if they have CPF savings to pay for the loan and have income. Furthermore, you would need the approval of your Official Assignee to begin exploring 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 your Official Assignee and any bank, you still need to have cash on hand, which means you will not be able to purchase a property immediately but will need to save for some time.
In a complicated situation like this, you will need to plan and search carefully to determine what doors are open to you. Regardless of how you finance your new flat, ensure you are able to pay the instalments regularly and on time. Even protected HDB flats can be lost if you repeatedly fail to make your payments for more than three months.
4. Can the Bank Seize My HDB Flat?
If you are a current homeowner of an HDB flat, you may wonder, "Can the bank seize my HDB flat?" Well, the answer is "Unlikely." There is little possibility that the bank will seize your HDB flat.
However, in the event of bankruptcy, switching to a CPF repayment scheme instead might be an option to ensure that you continue to make your payments on time. Financial assistance measures are put in place to protect Singapore citizens who are going through bankruptcy and will be made available to you in the event.
So rest assured, for those who have the question, "Can the bank seize my HDB flat?" buzzing around their minds, your HDB property will remain protected.
However, if your house is not sustainable in your current financial hardship, you may also want to consider selling it 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.
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5. Discharged from Bankruptcy? What’s Next?
Once you have been officially discharged from bankruptcy, you may be interested in refinancing your mortgage to get a better deal, especially if you are on an 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 people discharged from bankruptcy for at least 2 years. In the meantime, you can use online refinancing tools to remain updated on the best mortgage packages.
If you are in this situation, don’t be disheartened. There may be other strategies one can adopt. 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.
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