MinLaw proposes new laws to curb abuse of Debt Repayment Scheme

The Ministry of Law (MinLaw) has unveiled plans to amend Singapore’s insolvency laws to curb abuse of the Debt Repayment Scheme (DRS), a bankruptcy alternative for individuals with smaller debts.

Announcing the proposals on 9 June 2025, the ministry said consultancy firms have been exploiting loopholes by encouraging debtors to borrow money and self-petition for bankruptcy solely to qualify for the DRS.

The scheme, first introduced in 2009 during the global financial crisis, allows wage-earning debtors with unsecured debts of up to S$150,000 to repay creditors through a structured plan within five years.

New criminal offence created

Under the proposed changes, the Insolvency, Restructuring and Dissolution Act (IRDA) will be amended to introduce a new criminal offence.

This offence will make it illegal for businesses to solicit bankruptcy applications from individuals. Offenders may face a fine of up to S$10,000, a jail term of up to three years, or both.

MinLaw clarified that regulated professionals such as lawyers, accountants, financial advisers, and recognised charitable organisations will be exempt from the law.

The ministry said the measure was necessary to stop “predatory practices” by firms that profit by charging high consultancy fees, often encouraging debtors to take on further loans to afford these services.

Rising self-initiated bankruptcies

Figures highlight the scale of the issue. In 2024, 2,928 bankruptcy applications—or 59 per cent of the total—were filed by debtors themselves, according to data reported by The Straits Times in March.

While self-initiated applications are not inherently problematic, MinLaw warned that many appear motivated by attempts to gain partial debt relief under the DRS rather than by genuine financial distress.

The ministry stressed that the DRS was designed to assist debtors who could repay part of their debts over time, not to provide an escape route for those deliberately manipulating the system.

Tougher eligibility rules proposed

Alongside the new offence, MinLaw has proposed two additional grounds for deeming debtors unsuitable for the scheme.

The first is the failure to pay preliminary fees of S$600, which cover administrative costs incurred by the Official Assignee (OA), the officer who oversees the DRS.

The second concerns debtors who incur loans with no reasonable expectation of repayment, particularly within the 12 months before filing for bankruptcy.

This provision targets individuals who borrow heavily just before applying for the DRS, using the scheme to avoid full repayment.

Termination of existing DRS arrangements

MinLaw is also seeking powers to terminate repayment plans where such behaviour is discovered after admission to the scheme.

Debtors who are found to have incurred debt irresponsibly may have their DRS plan revoked. In such cases, the OA will issue a Certificate of Failure, allowing creditors to pursue bankruptcy proceedings.

This dual approach—screening applicants and monitoring participants—aims to ensure that the scheme is reserved for debtors acting in good faith.

Stricter timelines for creditors

Another major change is the introduction of a statutory four-week deadline for creditors to file proofs of debt.

Currently, delays in creditor submissions can disrupt repayment arrangements, especially when late claims push the debtor’s total liabilities above the S$150,000 threshold.

Under the new rules, creditors who miss the deadline must provide a valid reason to seek an extension. Those unable to justify late submissions will forfeit their claims once the debtor successfully completes the plan.

MinLaw said the tighter timelines are designed to improve administrative efficiency and provide greater certainty for both debtors and creditors.

Previous reviews and adjustments

The latest review follows earlier amendments in 2016, when the debt threshold for eligibility was raised from S$100,000 to S$150,000.

That change aimed to expand access to the DRS during periods of rising household debt, ensuring that more wage earners could avoid full bankruptcy if they were able to repay part of what they owed.

The current proposals, however, focus on safeguarding the scheme from exploitation rather than expanding access.

Administrative refinements

Several smaller procedural updates are also included in the reform package.

These cover appeal processes, timelines for various filings, and clarifications of statutory provisions to reduce ambiguity in implementation.

The ministry said such updates are part of ongoing efforts to streamline the DRS and adapt it to evolving economic conditions.

Public consultation open

MinLaw is inviting members of the public to provide feedback on the proposed changes through an online consultation portal at https://go.gov.sg/drs-proposed-legis-consult.

The consultation period runs until 27 June 2025.

“Preserving the integrity of the DRS is vital,” the ministry said. “These amendments seek to strike a balance between helping debtors rehabilitate and protecting the interests of creditors.”

Wider context: household debt challenges

The proposals come amid growing concerns about personal debt in Singapore. While the country has relatively low bankruptcy rates compared with many developed economies, rising housing and living costs have strained household finances in recent years.

The DRS has been credited with offering a “second chance” to individuals who fall into financial difficulty but are still able to repay part of their debts through steady income.

Analysts note that ensuring the scheme remains fair and effective is crucial for both debt recovery and social stability.

What happens next

If enacted, the amendments will give the government new tools to prevent exploitation of the DRS. Consultancy firms that profit from steering debtors into bankruptcy will face criminal liability, while individuals who borrow irresponsibly may be barred from or ejected from the scheme.

The legislative changes will be debated in Parliament later this year after the consultation period closes.

For now, MinLaw has emphasised that the goal is not to restrict genuine access but to preserve the scheme’s original purpose: enabling responsible debt repayment without the stigma and long-term consequences of bankruptcy.