What is the Debt Repayment Scheme in Singapore?

The Debt Repayment Scheme in Singapore, or DRS, is an alternative to declaring bankruptcy for people struggling with debt repayment.

The DRS works in a similar way to bankruptcy. An officer from the Ministry of Law’s Insolvency Office, known as the Official Assignee (OA), is appointed by the High Court to administer the debtor’s affairs.

The DRS can be a hugely successful option for both debtor and creditor. The debtor can enter a repayment plan which makes repaying the amount more affordable, plus they avoid the stigma and restrictions of bankruptcy. The creditor gets their money.

Applying for the Debt Repayment Scheme

Debtors can’t strictly apply for the DRS; it’s only an option alongside a bankruptcy application to the court. The Debt Repayment Scheme is really a pre-bankruptcy plan, and eligibility criteria apply.

If creditors have already acted and started bankruptcy proceedings against the debtor, the court can refer the case to the Insolvency Office to be assessed for suitability to enter the scheme.

Eligibility criteria for the Debt Repayment Scheme

Not all people struggling with debt are eligible for the DRS. The criteria are:

• Total debts must not exceed S$150,000 and be a minimum of S$15,000
• Debtors must have secure employment with a regular income
• A debtor cannot have previously been made bankrupt at any point in the last five years
• A debtor cannot have been a member of the DRS in the previous five years
• Sole proprietors or partners in a partnership are excluded
• All information and documentation submitted under the scheme must be accurate and true
• A debtor must disclose all the information relating to their financial affairs

The DRS have rules and requirements that participants must observe while participating in the scheme.

What does membership of the DRS involve?

Debtors eligible for the scheme will receive a debt repayment plan (DRP) which the OA puts together along with their input.

The process begins when the debtor submits information about their financial affairs with their proposed debt repayment plan. Documents include a statement of affairs, an income & expenditure statement, and the proposed debt repayment plan. This is an online submission sent via the Ministry of Law’s Insolvency Office E-Services portal. There is a fee to apply of S$350 submitted with the application.

The OA reviews the documents and then arranges a meeting with the creditors. The debtor must attend. All parties discuss an appropriate monthly instalment to repay the monies owed. The creditors must agree with the DRP, and once the OA has approved it, the debtor will begin to make their monthly instalment payments to the OA, who distributes funds to the creditors involved in the DRP.

Participation in the Debt Repayment Scheme

Membership of DRS places certain obligations and duties on the debtor, in addition to the commitment to repaying a monthly amount that the OA has determined.

An applicant must disclose details of all their property, including property in their possession, during the five years before the start of the proceedings.

Debtors must be present at any meetings convened by the OA with creditors unless there is a compelling reason why they cannot attend, such as illness.

DRS members cannot contract with a lender or financial institution to enter any further debt greater than S$1,000 without disclosing their DRS status to the lender. They should not incur any additional debt without the ability to repay.

Contact details must always be updated with the OA’s office, including any change of address. A change in employment details must also be notified, including alterations to salary and the payment of any bonuses.

Any request for information from the OA must be met truthfully, and any instructions issued by the OA must be complied with.

Successful completion of DRS

The OA issues a Certificate of Completion to a debtor who successfully repays their debts; these may not be all the debts a debtor is liable for, just those that form part of the scheme. A DRP is for a fixed period, which cannot be longer than five years.

The OA can revoke a Certificate of Completion if it becomes apparent the debtor has withheld certain information that should have been disclosed to the scheme or has made any false representations to gain entry to the scheme or influence the monthly contribution. This is called a Revocation of Certificate of Completion.

The difference between DRS and the Debt Consolidation Plan (DCP)

Debtors can apply for schemes like the Debt Consolidation Plan (DCP). This is debt refinancing program (loan) allowing the debtor to consolidate all their unsecured debts with a single lender. It’s then easier for the debtor to deal with one financial institution.

The DRS can only be initiated as part of a bankruptcy application. The debtor can make this application, or one of their creditors may start it. The Official Assignee undertakes a preliminary assessment to decide whether a bankruptcy case is suitable for the Debt Repayment Scheme.

The DRS is voluntary and not compulsory, but most people opt for it as an alternative to bankruptcy. Cases considered for eligibility for the DRS are allowed a six-month stay of bankruptcy proceedings to enable the OA to assess suitability.

The advantages of DRS compared to bankruptcy

There are several advantages to the DRS compared to bankruptcy, and these include:

• No public record as a bankrupt. However, the DRS status will appear on the debtor’s personal record
• A bankrupt cannot leave Singapore without approval from the Official Assignee, but a debtor on the DRS will not have restricted travel
• A DRS debtor can run a bank account. Compare this to a bankrupt whose bank accounts are closed with any balance transferred to the bankruptcy estate
• The period to repay debts is a maximum of five years on the DRS; bankruptcy can last longer

All the debtor’s unsecured borrowing is eligible for inclusion under the DRS; this differs from a Debt Consolidation Plan, which only includes certain types of unsecured borrowing, not all.

There is only one main disadvantage to the DRS, and that is the applicant cannot apply or initiate it; DRS is part of the pre-bankruptcy process, so it can only be considered in this way. However, membership of the DRS does not automatically mean bankruptcy will follow, so this should not put off debtors.

Final thoughts on DRS

The Debt Repayment Scheme can provide an affordable alternative to bankruptcy and avoid the implications and stigma associated with being declared bankrupt. Monthly payments are usually affordable, and paying off debts under the DRS means a clean slate for the individual.

People who are struggling with debt have several different options open to them. It’s always worth discussing these with an experienced debt adviser or lawyer for the complete picture and to help make an informed decision.