15-06-2025
Authorities to criminalise firms soliciting bankruptcy filings to exploit debt relief scheme
SINGAPORE: The Ministry of Law (MinLaw) has proposed legal amendments to prevent abuse of the Debt Repayment Scheme (DRS), a bankruptcy alternative for individuals with smaller debts.
The move targets consultancy firms that allegedly encourage debtors to borrow money and self-petition for bankruptcy solely to qualify for the DRS.
On 9 June 2025, MinLaw announced plans to introduce a new offence under the Insolvency, Restructuring and Dissolution Act (IRDA).
This offence will criminalise the solicitation of bankruptcy applications by businesses.
The proposed punishment includes a fine of up to S$10,000, imprisonment for up to three years, or both.
Regulated professionals such as lawyers, accountants, and financial advisers—as well as recognised charitable entities—will be exempted from the law.
The DRS was introduced in 2009 in response to financial challenges faced during the Great Recession.
It offers wage-earning debtors with unsecured debts not exceeding S$150,000 a way to repay creditors under a structured plan lasting no more than five years.
According to MinLaw, an increasing number of debtors are engaging consultancy firms that charge substantial fees and encourage clients to incur additional debt to fund these services.
These practices have led to a rise in debtor-initiated bankruptcy filings.
The Straits Times reported in March that in 2024, 2,928 out of all bankruptcy applications—or 59 percent—were filed by debtors themselves.
MinLaw has expressed concern that many such filings are motivated not by genuine financial distress but by attempts to obtain a partial discharge of debts under the DRS.
Under current law, debtors must file for bankruptcy to be considered for the scheme.
However, the ministry emphasised that the scheme was never intended for abuse.
In addition to the new criminal offence, MinLaw is proposing two further grounds under which debtors may be deemed unsuitable for the DRS.
The first is the failure to pay the preliminary fees totalling S$600, which are required to cover administrative costs borne by the Official Assignee (OA), the officer overseeing the scheme.
The second is where a debtor incurs debt with no reasonable expectation of repayment—particularly within 12 months prior to a bankruptcy application.
This aims to address cases where individuals take on new loans shortly before applying for the DRS, effectively using the scheme to bypass full repayment.
MinLaw is also proposing to designate this same behaviour—incurring debt without a reasonable expectation of repayment—as a ground for failure of the DRS, even after a debtor has been accepted into the scheme.
This would empower the OA to terminate repayment plans and issue a Certificate of Failure, allowing creditors to commence bankruptcy proceedings.
To enhance administrative efficiency, a new statutory four-week deadline for creditors to file proofs of debt is also proposed.
At present, delays in creditor submissions can disrupt the planning and implementation of repayment arrangements, particularly if new claims exceed the S$150,000 threshold.
Under the changes, creditors who miss the deadline may still request an extension, but must provide a valid reason.
Those who fail to file on time without justification will forfeit claims after a debtor successfully completes the plan.
These proposed legislative amendments follow a previous review of the DRS in 2016, which raised the debt threshold from S$100,000 to S$150,000.
Other minor procedural updates are also proposed, including changes to appeal procedures and timelines, and clarification of existing statutory provisions.
MinLaw is inviting public feedback on the proposals through an online consultation portal.
Submissions are open until 27 June 2025.
The ministry said the proposed changes are aimed at preserving the integrity of the DRS while ensuring that both debtor rehabilitation and creditor interests remain balanced and protected.
