Debt Settlement in Singapore - What to Do When You Can't Repay Loans (2023)

The coronavirus economy has hit many borrowers hard. If you face a sudden loss of income due to the Covid-19 pandemic, and find that you have no way of repaying your credit card and/or personal loan debts in the short term, debt settlement may be an option. Here's how it works.

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Debt Repayment Scheme

Most of us are well aware that filing for bankruptcy is the most severe of the debt settlement options, and is for those who have exhausted all other options. The debt repayment scheme (DRS) is an alternative to declaring bankruptcy. The minimum debt to file for bankruptcy is S$15,000. But, where possible, the Insolvency Office will place bankruptcy applicants on the Debt Repayment Scheme, a pre-bankruptcy programme where applicants agree to a monthly payment plan of up to 5 years. There will be an Official Assignee, an officer from the court, to assist you in a suitable repayment timeframe and other administrative matters. Note that there will also be fees payable to your Official Assignee for administering your DRS and other administrative fees to submit your necessary documents.

Why should I apply for the Debt Repayment Scheme?

The Debt Repayment Scheme will prevent your creditors, who have no claims over your properties for their financing, from taking any legal actions against you. The DRS will allow you to work out suitable repayment schedule, with the help of an Official Assignee to repay your debts to your creditors.

How to apply for the Debt Repayment Scheme?

To apply for the DRS, you would need to apply for bankruptcy with the court. Either that, your creditors can also take out bankruptcy proceedings against you. The court will then refer you to the Insolvency Office for the Official Assignee to assess whether you're eligible for DRS.

Who is eligible for the Debt Repayment Scheme?

To be eligible for DRS, there are a few criteria to meet. First, your total liabilities cannot be more than S$100,000. You should be employed and earning a regular income, not a sole proprietor or partner in any business, have never been bankrupt (or on DRS in the last 5 years), and have not been in a court-based arrangement in the last 5 years. With this clean record, you may be placed on DRS.

What are my duties if I am placed under the Debt Repayment Scheme?

If you're eligible for DRS, your Official Assignee will assist in devising a Debt Repayment Plan (DRP). You'd be required to submit your statement of affairs, income & expenditure statements and other supporting documents along your DRP. You will also be asked to disclose your properties, any disposal of your properties within the last 5 years before the commencement of your DRS and attend meetings with your creditors as arranged by your Official Assignee. You would also not be allowed to borrow any amount more than $1000 without informing your lender of your DRS status. You would need to provide accurate personal information to your Official Assignee at all times and comply with their instructions relating to DRS when required.

What if I fail to comply with the scheme?

If you do not comply with the monthly repayment plan under the debt repayment scheme, your creditors may continue the bankruptcy proceedings against you. Your Debt Repayment Scheme will come to an end and a Certificate of Failure will be issued to you by your Official Assignee.

Is it worth it to file for bankruptcy?

There are many reasons why filing for bankruptcy is regarded as a last resort, even if it does allow you to pretty much negate your debts. For one thing, you will have to give up your assets (except the bare necessities) to your creditors. For any income you earn in the future, you will still need to pay a "target contribution" to your creditors. Your credit score is going to be the worst it can possibly be, and it will take years to ever build it back up to normal levels. You won't be able to travel out of Singapore. And of course, the stigma takes a huge toll on one's career, family and social status. There are so many costs to bankruptcy that it should never be considered the "easy way out" of debt.

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Do You Qualify for These Covid-19 Debt Relief Measures?

Before you resort to one of the debt settlement options listed here, you should know that the Singapore government has extended Special Financial Relief Programmes for those affected by Covid-19. There are two programmes; one to help with unsecured loans (including credit cards and revolving credit) and another for your various loans (including education, car and property loans). So first check if you qualify for any of these.

Credit Card / Line of Credit

If you are a Singaporean or PR, you may be eligible for help to deal with high interest debt from your credit card or credit line. You will need to prove at least 25% loss of income from 1 Feb 2020 onwards. If you qualify, you can convert your outstanding credit card balance into a term loan of up to 5 years. This loan will have a standardised effective interest rate of 8% p.a., which is significantly lower than that of credit cards.

Personal Loans

Anyone who is repaying any form of loans can apply for a deferment of their loan repayments from now until 31 Dec 2020. You do not have to be a citizen/PR or prove loss of income to apply; as long as your payments are no more than 90 days overdue, you can apply to the bank for deferment. According to MAS, money lenders in Singapore are not allowed to charge interest on deferred interest payments.

What If You Don't Qualify for Covid-19 Financial Relief?

The abovementioned debt relief measures are undoubtedly helpful for improving cashflow if you have credit card debt and an outstanding mortgage. But what if you have other forms of debt, like a personal loan? Or if you don't qualify for the relief measures? In that case, you may want to look into debt settlement. There are 6 options in Singapore, ranging from a simple straightforward appeal, to truly dire measures such as filing for bankruptcy.

Debt Settlement Options in Singapore (2023)

There are 6 debt settlement options in Singapore. These range from a simple straightforward appeal, to truly dire measures such as filing for bankruptcy.

Types Of Debt Settlement In Singapore

Discounted Lump Sum Settlement

One of the most common and faster ways to debt settlement is appealing to your bank directly to negotiate for a discounted final settlement of the debt through one lump sum payment.

However, this is only a good option if you’re able to raise a lump sum amount of money by selling off some of your assets, such as properties or investments, or taking out a low-interest loan from an MAS-approved non-bank institution such as a credit co-operative society or a company loan.

Debt Management Programme

Also known as DMP, the Debt Management Programme is offered by Credit Counselling Singapore (CCS), a charitable organization that helps those with unsecured debt issues. If you’re eligible for this programme, CCS will hold a debt advisory session with you to work out your monthly spending needs and a payment proposal that the banks can approve.

Similar to personal loans with a monthly instalment plan, a DMP enables you to gradually repay unsecured consumer debts including credit cards and overdraft with moderated interest charges over a reasonable and agreeable tenure that is discussed between you and the creditor.

The tenure can range from 5 to 10 years, depending on your financial capability to pay back the debt. However, your debts in a DMP are not consolidated under one bank unlike the Debt Consolidation Plan (DCP) which we will explain in more detail later on. So you’ll have to bear with the inconvenience of making repayments of your debt with multiple credit cards or debit cards.

Debt Repayment Scheme (DRS)

The Debt Repayment Scheme (DRS) is considered a pre-bankruptcy scheme administered by the Official Assignee (OA) from the Ministry of Law’s Insolvency Office. Through DRS, you’ll be able to avoid bankruptcy, along with its financial restrictions.

Moreover, unlike in a bankruptcy, you do not have to face any travel restrictions, and have the flexibility to repay your debts over a fixed period that is often about 5 years, and can maintain a regular savings account. Note that a DRS is not like a personal loan which you can sign up or apply for.

Bankruptcy

Most of us do not wish to reach the stage of bankruptcy as it comes with many consequences, but at times, it may be the last resort one has to take. So to be mentally prepared, you’ll need to know that you can only file for bankruptcy if you cannot repay debts of greater than $15,000 (according to the Bankruptcy and Insolvency Act in Singapore).

While this can be done voluntary, banks can also begin proceedings without any permission from you to declare you as bankrupt (if the banks have evidence that you’re in this state). Thereafter, there are many restrictions placed on you as a bankrupt such as having your assets seized, having to declare every single expense although you can still continue to be employed and working, getting a travel ban, difficulty in future loan applications due to impaired credit score.

Debt Consolidation Plans

Not to be confused with the DRS, a debt consolidation plan or a “DCP loan”, is a type of repayment scheme that helps you combine all your outstanding unsecured debt (including those from different banks) into one single loan with one bank. It usually involves a 1-month income revolving revolving facility and has a tenure of up to 10 years. Your DCP loan will be calculated by your DCP issuing bank which is typically a sum of the total outstanding debts, plus outstanding interest, plus 5% on top of the total.

There are some limitations when signing up for a DCP as it is only meant for credit card bills, personal loans, and personal line of credit, meaning a DCP excludes any secured loans like home loans, car loans, education loans, renovation or business loans. In addition, you’ll have to be a Singapore citizen or PR to qualify for this type of loan.

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Best Debt Consolidation Plans To Consider

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Frequently Asked Questions about Debt Settlement, Debt Consolidation & Debt Management

What is a debt settlement appeal?

The simplest form of debt settlement is by writing an appeal letter to your creditor (e.g. bank or financial institution) explaining your financial circumstances. In this letter, you would appeal for a more affordable instalment repayment plan, such as smaller instalments over a longer loan tenure. Self-administration is a viable option if you owe only 1 or 2 creditors.

How do you file a debt settlement appeal?

First of all, there is no need to hire a lawyer to write your debt settlement appeal. You can write it yourself based on the template available on ccs.org.sg. You will need to provide proof of your recent income loss or other financial circumstances to prove that you are going through financial difficulties. You may also be asked to fill out a budget sheet to show that your proposed repayment plan is truly the best you can do during this time.

What are the possible outcomes?

Depending on how lenient your creditor is, your appeal may be rejected or accepted. Some banks may accept your offer outright, while others may accept it only as a temporary measure (say 3 to 6 months), after which you will need to re-negotiate terms. If rejected outright, you may try appeal again with a more palatable repayment plan.

What is a debt consolidation plan?

Those who have borrowed heavily from many different sources will find it difficult to write debt settlement appeal letters. For Singaporeans and PRs, a debt consolidation plan (DCP) is a viable alternative. Under DCP, a single bank or financial institution pays for all your outstanding unsecured debt (e.g. credit cards, lines of credit), while you agree to pay back the bank in fixed monthly instalments.

Who is eligible for a debt consolidation plan?

Debt consolidation plans are open only to Singapore citizens and PRs. Your income should be between S$20,000 to S$120,000 a year, and your net personal assets less than S$2 million. You also have to be heavily in debt to qualify: The outstanding unsecured debt on all your credit cards and credit facilities more be more than 12 times your monthly income.

What is the outcome?

Most major banks in Singapore offer debt consolidation plans, so you can approach them directly to maximise your chances of acceptance. Once your application is approved, all your existing credit facilities will be closed, except a line of credit (capped at 1X your monthly income) for daily expenses. You will then focus on repaying the monthly instalments on your debt consolidation plan.

What is the debt management programme?

Not to be confused with debt consolidation plans, the debt management programme (DMP) is offered by Credit Counselling Singapore as an option for individuals in serious financial distress. That is, those unable to pay for basic living expenses after making minimum payments on their debts, and perhaps already facing legal action.

Who is eligible to be placed on DMP?

To be eligible for consideration, you must have unsecured debt (credit card, credit line, personal loans) of at least S$10,000, owed to at least one bank. You cannot nominate yourself to be placed on DMP. Instead, you will have to apply through Credit Counselling Singapore (www.ccs.org.sg). First, either attend a debt management talk or complete an online course, then request a 1-to-1 financial counselling appointment. Your financial counsellor will determine if you are suitable to be placed on DMP.

Is this form of debt settlement worth it?

The main benefit of being on the debt management programme is that banks may offer you a lower interest rate and/or extend your repayment period. However, similar to bankruptcy, being on DMP is something that most people would want to avoid. Your credit report will show that you are on DMP, and you will not be able to apply for any credit card or unsecured credit facilities in Singapore. You will also need to work with credit counsellors to tackle your debt problem.

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