Debt Settlement in Singapore - What to Do When You Can't Repay Loans (2020)
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.
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.
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, lenders are not allowed to charge interest on deferred interest payments.
What's In For Us In The Covid-19 Debt Relief Measures?
With the virus situation taking a toll on Singapore's financial industry, the Covid-19 debt relief measures maybe exactly what you need to tide through this difficult season. These debt reliefs may just be the perfect solution to ease cashflow now. We've complied a list of the various relief measures and their eligibility criteria just for you.
What If You Don't Qualify for Covid-19 Financial Relief?
Debt Settlement Appeal
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.
Discounted Lump Sum Settlement
What is discounted lump sum settlement?
- This is an alternative to the standard debt settlement appeal, where you ask for a more affordable instalment payment plan. Instead of paying by instalments, this time you would be asking the creditor to give you a discount on the total owed amount. In return, you promise to make payment in a lump sum by a certain date. You can write this appeal letter with or without the help of a lawyer.
Who should opt for lump sum debt settlement?
- Obviously, only borrowers who are confident of raising a lump sum in the near future should try this! Otherwise, you would risk defaulting on your debt settlement plan. You can try a lump sum debt settlement if you have assets you can sell in the near future, such as property or shares.
What are the possible outcomes?
- As with the debt settlement appeal, it all depends your creditor's response. They can choose to accept or reject your proposal. Bear in mind that the lump sum needs to be an attractive amount for the bank to even consider it. If you owe S$10,000 but propose to repay S$5,000 in a lump sum after selling your shares, the lender will probably not entertain your request.
Debt Consolidation 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.
Debt Management Programme
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.
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.