Published March 19, 2008

Bankruptcies sneak back despite good times

Situation could worsen if economy slows and people start losing their jobs


(SINGAPORE) Despite full employment and robust economic growth, the number of people facing financial ruin has begun to rise.

After falling from a high in 2004, the number of bankruptcy petitions and orders has begun to flatten and the delinquency rate for credit card holders has started to go up.

Lawyers and those involved in bankruptcy counselling say new bankrupts tend to be younger and are mainly men. Also showing up are parents who acted as guarantors for their children.

While the upward trend is far from alarming as it springs from a very low base, the situation could turn bleaker if the economy slows down and some people lose their jobs.

'As far as I am aware, 99.9 per cent of the people made bankrupt are holding jobs; they complain that their salary is too low to pay (the debt) and that they have a family to feed,' said Aaron Chan, Advent Law director.

The economy expanded 7.5 per cent last year and the unemployment rate was 2.1 per cent - a 10-year low. The National Trades Union Congress (NTUC) said retrenchments hit a 14-year-low, while unionised firms paid out the fattest bonuses in 18 years.

Yet people seem to be living beyond their means.

'When the country is doing well, there's a feel-good factor and people just want to spend,' said Mr Chan, who has been a banking litigation lawyer for some 15 years.

He said the weekly list which comes out for bankruptcy hearings includes professionals such as lawyers and doctors.

But these professionals usually pay up at this stage as they would not be allowed to practise if they were made bankrupt, Mr Chan said.

Creditors can petition for a person to be made bankrupt once the debt exceeds $10,000.

Leong Sze Hian, president of the Society of Financial Service Professionals, volunteers at the Official Assignee's office. He said the number of bankrupts could be even higher as creditors are holding back.

In January this year, there were 292 petitions for bankruptcy and 215 bankruptcy orders were passed. In 2007, the average monthly bankruptcy petitions stood at 268 and the orders at 230, according to the Insolvency & Public Trustee's Office.

In the works is a debt repayment scheme to help debtors avoid bankruptcy.

Since he began counselling debtors two years ago, Mr Leong said he noticed that a number of new bankrupts seem younger, and are overwhelmingly men.

Bankrupts include those who have problems paying rent for their HDB shops as well as those who cannot pay the bank loans for their HDB homes.

In addition, quite a few are parents who acted as guarantors for the unsecured credit taken out by their children, Mr Leong said.

There was also one case of a man who did not own a car but was bankrupted for his certificate of entitlement (COE) bid.

He had bid $8,000 for the COE but found his application for a car loan rejected by a bank, said Mr Leong. With fees and charges, his debt snowballed to over $10,000, he said.

Credit Bureau (Singapore) Pte Ltd data shows that the number of delinquent credit card holders began rising steadily from July last year.

In December, there were 14,379 delinquent credit card holders representing a delinquency rate of 1.42 per cent against 11,346 or 1.16 per cent in July.

Said Credit Bureau general manager Mark Rowley: 'I agree that we are seeing some early signs that delinquency is trending upwards although arguably off a low base. The numbers over the next few months will be interesting.'

Credit Bureau's data also shows that a majority of those having payment problems are between 21 and 44 years old, and men make up almost 70 per cent.

Some 80 per cent have credit cards with at least two banks. In most cases, the delinquent owes less than $5,000.