Life can throw you many unexpected twists and turns. One minute, your business is flourishing or you’ve got a well-paying job. The next minute, a pandemic occurs, business is disrupted, and there goes your stable income. When things were good, you took on large personal loans you could handle reasonably well. Now that your income is disrupted, what will happen to those debts?

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In Singapore, an increasing number of businesses are applying for bankruptcy protection. In 2023 itself, as of the month of September, almost 3000 individuals applied for bankruptcy. These figures are a result of many factors, including but not limited to the effects of Covid 19. Bankruptcy has heavy implications on an individual’s life. Because of this, the Singaporean government has provided an alternative solution for debtors, known as the Debt Repayment Scheme (DRS)

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Getting to Know the Debt Repayment Scheme

When you apply for bankruptcy, you’re asking to be legally recognised as being unable to repay your debts. In Singapore, any one with an outstanding debt of more than $15,000 and is unable to repay that debt can qualify to file for bankruptcy. Each applicant will then be assigned an Official Assignee (OA) from the Ministry of Law’s Insolvency Office. Subsequently, a hearing date will be determined.

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Before the hearing commences, some time will be allocated for the OA to assess whether you are suitable for the debt repayment scheme (DRS). This is a pre-bankruptcy plan that helps you to resolve your dues without the negative effects of a bankruptcy declaration. Bankruptcy judgements from the High Court carry heavy consequences, such as being barred from travelling overseas or holding high positions in any companies.

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How Does the DRS Work?

The government has offered a less severe method by which you may settle your debts. With the DRS, you will pay a monthly instalment, with bonus contributions for a period not exceeding 5 years. The payment amount will be determined by your OA, and they are responsible for collecting your payments and disbursing them to your creditors as well.

The amount of monthly instalments to be paid will be calculated based on what you can afford, versus how much you owe. The OA will usually set aside a reasonable amount for your living expenses and will not take ownership of your assets or properties.

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What are the Benefits of the Debt Repayment Scheme?

The DRS is a more lenient solution to debt resolution, and is offered to those with a reasonable ratio of debt vs income. This scheme was introduced to minimise the number of bankruptcies in the nation, which can influence investor perception and other economic parameters.

Those who qualify for the DRS will have less restrictions placed on them, and enjoy greater freedoms. Here’s how the DRS differs from conventional bankruptcy declarations.

• Those under the DRS will not have their assets or properties confiscated. They will continue to own them. Under bankruptcy law, unlike the DRS, the OA will take possession of bankrupt’s assets, which will usually be auctioned off to pay creditors.
• Debtors under the DRS can still maintain multiple existing bank accounts and manage them as they see fit. This differs from those under the bankruptcy plan, which disallows multiple accounts and only allows one savings account to be maintained.
• There are no travel restrictions based on DRS debtors, whereas a bankrupt individual can only travel overseas with the permission of their OA.
• In the case of bankruptcy, their names would have to be published in the newspapers to inform the public, whereas this is not a requirement for DRS debtors.
• Under the DRS scheme, you are free to hold high positions in companies and even become a company director. The same cannot be said of someone that is declared as bankrupt.

Downsides to Debt Repayment Scheme

While DRS provides a structured approach to debt management, it is essential to consider the potential drawbacks associated with the program.

• Firstly, participation in DRS restricts individuals from taking on further debt during the repayment period. This limitation is imposed to ensure a focused and successful debt resolution process.
• Secondly, it is important to note that enrolling in DRS may have a lasting impact on your credit score. Your records might be accessible through credit checks by lenders through the Credit Association of Singapore, potentially influencing future credit applications. It is advised to carefully weigh these considerations before opting for the Debt Repayment Scheme.

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Who Qualifies for the Debt Repayment Scheme?

Not everyone who files for bankruptcy is suitable for the DRS, as the following conditions have to be met:

• The debtor’s liabilities must be unsecured, and not exceeding a total of $150,000
• The debtor must be employed and have a stable monthly income
• He or she cannot be the sole proprietor, director or partner in any company
• The debtor cannot have been a bankrupt or placed under the DRS in the last 5 years
• He or she cannot have experienced a court arrangement with creditors in the last 5 years

Can We Apply for the DRS Directly?

The simple answer is no, it is not possible for you to apply to be placed under the DRS. The only pathway to this scheme is to file for bankruptcy in the usual manner.

The OA assigned to your case will then assess the situation and decide if you qualify to be placed under the DRS. Should you be a suitable candidate, you will receive a ‘Notice of Introduction on DRS and Filing of Statement of Affairs’.

An introductory video will accompany the notice, as well as a request to fill in certain documents on the Ministry of Law’s e-Collection Portal. You will be given 14 days to complete these documents, some of which include:

• A Statement of Affairs
• A Statement of Income and Expenditures
• A proposed debt repayment plan
• And several other supporting documents

Failure to complete these documents within the 14 day period will result in your case being referred back to the courts for bankruptcy proceedings to recommence. Finally, you will be called to a meeting chaired by DRS administrators, where you will discuss and agree upon a Debt Repayment Plan (DRP) with your creditors. The final and official plan will be released for your benefit within 7 days of this meeting.

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In Summary

There are many options available to settle your outstanding debts before going to the courts. Some examples include debt restructuring and consolidation. Restructuring involves seeking a more affordable repayment plan, whereas consolidation involves combining your various loans together for better manageability.

Contact us to find out how Lendingpot can help you in your debt management efforts. With multiple lenders on this platform, you can compare personal loans at a glance, and find one that fits your situation the best.