Debt Repayment Scheme Singapore : How it works

Financial difficulties can strike out of the blue, leaving you entangled in a web of debts. Thankfully, in Singapore, there’s a lifeline for individuals overburdened with unmanageable unsecured debts with 6 debt settlement options and 1 of the solutions is the Debt Repayment Scheme (DRS) which is a pre-bankruptcy scheme administered by the Official Assignee.

What is the Debt Repayment Scheme?

The Debt Repayment Scheme (DRS) is a pre-insolvency initiative launched by Singapore’s Ministry of Law. It offers a viable alternative to bankruptcy for debtors with unsecured debts not exceeding SGD 150,000. The DRS facilitates a win-win outcome for both the debtor and the creditor. It allows debtors to avoid bankruptcy and its associated social stigma by committing to a structured repayment plan over a maximum period of five years.

How Does the Debt Repayment Scheme Work?

The DRS process starts when a bankruptcy application is filed against you. The court then refers your case to the Official Assignee (OA) who conducts a preliminary assessment to determine your suitability for the DRS. If you meet the criteria, the OA proposes a Debt Repayment Plan (DRP) that outlines your repayment commitments over a specified period, not exceeding five years.

Primary Eligibility Criteria:

• Total unsecured debts not exceeding SGD 150,000
• Gainfully employed with regular income
• Not a current undischarged bankrupt
• Not previously on the DRS in the last five years
• Not entered into a voluntary arrangement with creditors in the preceding five years
• Not a sole-proprietor or partner in any firm

Understanding the Debt Repayment Scheme Process

Stage 1: Referral by High Court

The High Court refers your bankruptcy application to the Official Assignee (OA) to assess your eligibility for the DRS. The bankruptcy proceedings are adjourned for up to six months during this assessment phase.

Stage 2: Submission of Supporting Documents

You’re given a deadline to submit documents detailing your financial affairs and a proposed Debt Repayment Plan (DRP). This submission includes a preliminary administration fee.

Stage 3: Meeting with Creditors

A meeting is held with your creditors where the OA seeks clarification on your submission and finalises the DRP. A suitability review fee is paid at this meeting.

Stage 4: Approval of Debt Repayment Scheme

Upon DRS approval, you attend a meeting to make the first monthly instalment and first annual fee payments. After this, your DRS commences, and the initial bankruptcy application is withdrawn.

Advantages of the Debt Repayment Scheme

So what are other advantages of the Debt Repayment Scheme in Singapore compared to bankruptcy?

1. Confidentiality over Bankruptcy
   One significant advantage of the Debt Repayment Scheme (DRS) in Singapore, when compared to bankruptcy, is the preservation of your financial privacy. While bankruptcy status becomes public knowledge, participants in the DRS maintain confidentiality, shielded from public scrutiny. It’s important to note, however, that if you qualify for the DRS, your status will still be part of your public record, accessible to all.
2. Unrestricted Travel
   Unlike bankrupt individuals, participants in the Debt Repayment Scheme face no travel restrictions. Bankrupt individuals must obtain prior approval from the Official Assignee to leave Singapore, while DRS participants enjoy the freedom to travel without such constraints.
3. Continued Banking Normalcy
   Choosing the Debt Repayment Scheme allows you to maintain your existing bank accounts, a privilege not afforded to bankrupt individuals. In bankruptcy cases, accounts may be closed, with balances transferred to the Official Assignee for creditor settlement.
4. Expedited Path to Debt Freedom
   The Debt Repayment Scheme offers a faster route to achieving debt-free status. Participants can clear their debts within a span of 5 years, while bankruptcy may entail a longer and more protracted period for debt resolution.
5. Interest-Free Debt Settlement
   Under the Debt Repayment Scheme, interest penalties on outstanding debts are eliminated. This means that participants no longer accrue interest on their balances, helping them make more substantial strides toward debt repayment.
6. Comprehensive Coverage for Unsecured Borrowings
   Unlike the selective nature of the Debt Consolidation Plan, which only accommodates specific unsecured loans, the Debt Repayment Scheme is inclusive, allowing participants to consolidate all their unsecured debts.

Disadvantages of the Debt Repayment Scheme

Despite its advantages, the DRS has a few drawbacks:

1. Non-Self-Initiated Application
   One limitation of the Debt Repayment Scheme is that individuals cannot apply for it independently. It must be initiated through a bankruptcy application, either voluntarily by the debtor or at the behest of their creditor(s), and can only be activated following referral from the High Court.
2. Public DRS Record
   Even if you qualify for the Debt Repayment Scheme, your DRS status will be included in your public record, primarily because of the public nature of bankruptcy applications. This means that your participation in the DRS will still be visible to the public.
3. Administrative Fees Apply
   It’s essential to be aware that the Debt Repayment Scheme is not a cost-free solution. Administrative fees are associated with participating in the program, and individuals should be prepared for these expenses.

Debt Repayment Plan (DRP) – The Key Component of DRS

The DRP is a monthly repayment plan agreed upon by you and your creditors. It outlines how much you’ll pay each month towards your debts over a specified period, up to a maximum of five years.

What Happens If You Don’t Qualify for the Debt Repayment Scheme?

If you don’t qualify for the DRS, your case is referred back to the High Court for bankruptcy proceedings. The fees paid during the DRS assessment are non-refundable.

DRS Termination Scenarios

The DRS can be terminated through a Certificate of Completion (upon successful repayment of debts), a Certificate of Failure (failure to comply with the DRP), or a Certificate of Inapplicability (due to various reasons such as exceeding debt limits).

Summary of the Debt Repayment Scheme Process

The DRS involves several stages from referral by the High Court, submission of supporting documents, meeting with creditors, to the approval of the DRS. Each stage requires compliance and payment of relevant fees.

Seek Professional Help

A personal loan can be a helpful tool in managing your finances, but it can also contribute to your financial burdens if not managed properly. If your personal loan repayments are causing financial stress, the DRS could be a feasible solution. But, it’s crucial to understand that the DRS should be your last resort. Always seek professional financial advice before making such decisions. Read up on the difference between the DRS and 2 other common debt settlement schemes at Debt Management plan vs Debt consolidation plan vs Debt repayment Scheme.

Reputable financial services firms like Tembusu Financial Services offer expert guidance on debt management and can help you understand if the DRS is the right solution for you.