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Everything You Need To Know About the Debt Repayment Scheme

Are you trying to find a method to pay off your debt in 2023?

It can be difficult to carry around debt. The constant worry about how to pay off what you owe not only takes a toll on your mental health, but your emotional state as well. There are a few options currently available in Singapore for debtors looking for a way out.

In this article, we’ll go into more detail about the Debt Repayment Scheme and how it can benefit those who are struggling with debt.

What are the debt settlement options available in Singapore?

There are six debt settlement options offered in Singapore, namely:

  1. Debt Settlement Appeal: Appeal to reduce outstanding debts based on financial hardship.
  2. Discounted Lump Sum Settlement: A one-time payment to pay off outstanding debts for less than the full amount owed.
  3. Debt Consolidation Plan: A scheme to combine multiple unsecured debts into a single loan with lower interest rates.
  4. Debt Management Programme: An arrangement to help individuals manage their debts effectively and negotiate with creditors.
  5. Debt Repayment Scheme: A scheme offered by the Singapore Government to help individuals with unsecured debts develop a repayment plan.
  6. Bankruptcy: A legal process where an individual’s assets are sold to repay outstanding debts, with potential long-term consequences.

Read more: Debt Settlement in Singapore: What are your options?

What is the Debt Repayment Scheme?

The Debt Repayment Scheme (DRS) was an initiative that was started in 2009 to offer an alternative to debtors who have been unable to repay their debts. It is a pre-bankruptcy scheme or a last-ditch effort to keep you from declaring bankruptcy. The High Court will appoint an Official Assignee (OA), to assist your administration as well as conduct the investigation and recovery of the debtor’s assets.

This approach to debt management not only aims to help individuals repay their debts, but also empowers them to take control of their financial situation and achieve long-term financial stability. However, unlike the majority of the previously stated options, DRS has much stricter eligibility criteria.

How do I qualify for DRS?

To be eligible for DRS, you have to fulfil the following criteria:

  1. Total liabilities should be between S$15,000 to S$150,000.
  2. Employed at the time of assessment and earning a regular income.
  3. Do not have an undischarged bankruptcy.
  4. Have not been on the Debt Repayment Scheme in the last 5 years.
  5. Have not made a voluntary agreement with your creditors in the previous five years
  6. Not a sole proprietor or a partner in any firm.

Do note that if the OA has any reasons to believe that failure to disclose information led to the approval of the scheme, the OA will report to the court and will proceed with the initiation of bankruptcy proceedings against you.

Hence, it is important that you do not:

  • Submit any false or misleading documents.
  • Withhold any important information regarding your financial affairs.
  • Fail to disclose any ownership or disposal of your property to the OA.
  • Feign losses and expenses to account for your property when reporting.

You may contact Credit Counselling Singapore to start the process.

What happens after I meet the eligibility criteria?

Once eligible, the OA will assist in drafting the Debt Repayment Plan (DRP). You are also required to submit a statutory declaration of your finances together with the proposed debt repayment plan via the Ministry of Law’s Insolvency Office’s e-Service portal.

Your statements should be filed in the following order:

  1. Statement of Affairs
  2. Income & Expenditure Statement
  3. Debt Repayment Plan
  4. Supporting Documents as per Annex B

Upon submission, your application would be reviewed. You will also be required to attend the meeting with the creditors and OA to go through your monthly instalment. Your proposed repayment plan can still be modified before the meeting.

Once the DRP has been approved, you will commence repayments to the OA who will settle the payments to the creditors included in the DRP. Do note that your DRS status will be public and visible to everyone.

How much does it cost?

Here is the breakdown of the cost of DRS.

FeesAmountDue
Preliminary AdministrationS$350
Initial submission of document
OA’s review of debtor’s suitability for the DRSS$250
On or before the meeting of creditors
Annual AdministrationS$300 (per year for first two years)
S$350 (per year for next three years)
At the start of every year of administration
Appeal Fee$100
At the submission of Notice of Appeal
DRP Modification Fee$50
On or before the meeting of creditors for modification of DRP

In addition to the above fees, the OA charges a collection fee of 1.5% of the total amount collected and a distribution fee of 3% of the amount distributed as compensation for their services in collecting and distributing dividends to creditors.

What happens if I do not qualify for DRS?

If you fail to meet the eligibility criteria or do not comply with the OA’s instructions, you will be deemed to be unsuitable for the scheme. In this case, you would be referred back to the High Court and proceed with your bankruptcy application.

However, do make sure to exhaust all other options for debt settlement. If all else fails, you might want to consider these three options:

  1. Annulment of the Bankruptcy Order by full settlement or Offer of Composition or a Scheme of Arrangement.
  2. Discharge by Certificate of the Official Assignee.
  3. Discharge by the High Court.

Why should I take up the DRS?

If you find yourself in this situation, your only other option other than DRS is likely bankruptcy. DRS is often viewed as a final lifeline for those who are struggling with debt to avoid the penalties and social restrictions that come with being bankrupt.

There are many reasons why one would opt for DRS given the chance as compared to declaring bankruptcy. One of the main motivations is that DRS prevents unsecured creditors from proceeding with any legal action against the debtor unless permitted by the court. While a DRS status will be visible to the public, it is not a public record, unlike bankruptcy.

Other advantages of DRS include

  1. Zero interest on outstanding debts
  2. Flexible repayment timeline
  3. No travel restrictions
  4. Able to maintain a regular bank account
  5. A structured way to pay off your debts
  6. The convenience of submitting documents online

The OA will issue you a Certificate of Completion if you have successfully settled your debts by the terms of your DRP. This certificate will release you from all debts provable under the DRS except for debts which you had not disclosed or filed by the creditor.

Read more: Should You Borrow More? Total Debt Servicing Ratio and Your Housing Loan

Conclusion

The Debt Repayment Plan tries to achieve a win-win situation for both the debtor and his creditor. The former agrees to pay off his obligation according to an agreed-upon payment schedule, while the latter agrees to get their money back, lessening the danger of losing all debt repayments if the debtor declares bankruptcy.

As the adage goes, prevention is preferable to cure. Therefore, don’t be afraid to seek assistance from experts if you are facing financial difficulties, to address the problem at its source and prevent it from worsening.

Read more: Reduce Your Family’s Household Debt to Change Your Future

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