There’s no such thing as an “easy way out”.
Whether you’re a business owner or an individual having issues with debt, filing for bankruptcy is usually regarded as the last resort due to its social stigma and devastating consequences such as difficulties in looking for a job, termination of existing bank accounts and restricted borrowing ability. In other words, it’s a “fresh start” that nobody wants.
On average, there are about 2,500 applications for bankruptcy in Singapore every year, with the figure rising to 2,932 last year.
It’s crucial that you understand all your options before filing for bankruptcy – here are six questions to consider.
1. Do I meet the bankruptcy requirement?
Either your creditor or yourself may apply for bankruptcy when you owe debts of at least $15,000 that you’re unable to repay.
Instead of bankruptcy, perhaps all you need is a plan. Make sure you get all your finances in order before making your decision.
For example, if you have a regular income and your debts do not exceed $100,000, you may qualify for the Debt Repayment Scheme and avoid bankruptcy.
2. Have I tried negotiating with my creditors?
Typically, creditors would prefer to settle a debt with you than have it discharged in bankruptcy. If you’re already several months behind payment (assuming it’s not in bad faith), the creditors may be more likely to agree on a settlement.
For business owners, one of the most effective ways to improve your cash flow is to lengthen your payment terms with vendors and suppliers. Try to extend your payment days from 30 to 60 days or more, so you can put your cash to use in ways that add to your bottom line.
3. Do I want to approach banks for interim loans?
Interim financing is the process of obtaining temporary loans to cover a company’s cash needs until a larger, long-term loan is finalised. The immediate cash flow will allow you to meet prioritised business needs and obligations.
Make sure you understand all the terms of an interim loan: It’s usually up to one year with relatively high interest rates and is typically backed by some form of collateral, such as your mortgage, real estate or inventory.
4. Have I reviewed the operational costs?
The smallest increase in revenue or reduction in business costs can have a huge impact on your bottom line. Step back and look at your business practices – what can you improve on?
If you have overdue personnel actions, it’s time to bite the bullet. Terminating the underperformers, moving staff to a part-time schedule, or giving valued employees equity in lieu of salary can usually help you save at least ten percent of operational costs.
Modernising your marketing efforts may also be useful. If you’ve been using a vendor, try doing more in-house. Scale down on paid advertising that isn’t working while looking at cheaper alternatives – social media, e-mail marketing and networking are some of the effective options you can consider.
5. Have I sought credit counselling?
Consider seeking help from Credit Counselling Singapore, a charity organisation that may be able to help you obtain more favourable results from your creditors – such as lower interest rates or a restructured debt payment – while providing emotional support during this stressful process.
6. Have I contacted a lawyer?
You don’t have to deal with your situation alone. If you’re seriously considering bankruptcy, get in touch with us to discuss your options and review the facts of your situation.
This article is for informational purposes only and should not be treated as legal advice.