MinLaw Consults on Legislative Changes to Prevent Abuse of Debt Repayment Scheme

The Ministry of Law (“MinLaw“) has issued a public consultation on proposed amendments to the Debt Repayment Scheme (“DRS“) under the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA“). The amendments aim to:

1. finetune the DRS to better meet the changing profile and needs of debtors while continuing to safeguard the interest of creditors; and
2. enhance the existing administrative processes.

By way of background, the DRS is a voluntary scheme designed to help wage-earning debtors with small debts avoid bankruptcy and enable creditors to receive better repayments. Debtors with a regular source of income can create a debt repayment plan (“DRP“) to pay off debts over up to five years under the Official Assignee’s (“OA“) supervision. Completing the DRP will release the debtor from his/her debts under the DRS. If a debtor gives false information to the OA, does not cooperate, or breaches the DRP, he/she may receive a Certificate of Failure, after which any creditor can proceed to make him/her a bankrupt.

The main proposed substantive amendments are set out below.

Introduction of a new criminal offence to target the soliciting and canvassing of any person to make a bankruptcy application

MinLaw highlights an increase in the number of debtor-initiated bankruptcy applications due to consultancy firms promoting the DRS as a means to obtain a discount on debts, rather than with the genuine intention to be adjudged a bankrupt. Such firms charge debtors sizeable fees while encouraging them to borrow irresponsibly to pay for such services.

To address this issue, MinLaw proposes to criminalise the soliciting and canvassing, in the course of any business, of any person to make a bankruptcy application. The offence will be punishable with a S$10,000 fine and/or three years’ imprisonment.

Lawyers, accountants, financial advisers, and charitable entities that are institutions of a public character will be exempted.

Addition of two further grounds of unsuitability for the DRS

Under the current legislation, the OA must report to the Court on a debtor’s unsuitability for the DRS if any of the conditions set out in section 289(2) of the IRDA are satisfied. MinLaw proposes to add two additional grounds of unsuitability:

1. the debtor’s failure to pay the preliminary fees, which reflects the current practice of the OA and places debtors on express notice that they must pay the preliminary fees to qualify for the DRS; and
   
   
2. the debtor’s incurring of debts without any reasonable ground of expectation of being able to pay within 12 months before the making of a bankruptcy application, or after the making of the bankruptcy application but before the commencement of the DRS. This aims to address the recent increase in debtors who obtain loans from licensed moneylenders and financial institutions shortly before self-petitioning for bankruptcy to enjoy a “haircut” through the DRS.

Addition of obtaining credit with no reasonable expectation of paying as a ground of failure for the DRS

Section 300(1) of the IRDA sets out the grounds of failure which, if satisfied, enable the OA to issue a Certificate of Failure to a debtor who has commenced a DRP.

MinLaw proposes to include the incurring of debts with no reasonable ground of expectation of paying as a ground of failure, addressing situations where the OA only becomes aware of such debts after the debtor has commenced his/her DRP. 

Imposition of a four-week deadline for creditors to file proofs of debt (“PDs”)

Presently, in the absence of a mandatory deadline, creditors often file their PDs just before the DRP is to commence or even after the DRP has commenced. This results in procedural inefficiencies and uncertainty on the part of debtors as to whether they are eligible for the DRS. Further, creditors who file their PDs too late may not be able to attend the meeting of creditors and have their queries addressed.

MinLaw therefore proposes to amend section 290(2) of the IRDA to state that the OA’s notice to creditors to file PDs will require creditors to file a PD within four weeks from the date of the OA’s notice. Creditors may submit a request for an extension of time, providing a reasonable justification for their failure to comply with the deadline. Importantly, if a creditor fails to comply without reasonable justification, the debtor will be released from the debt in respect of that creditor under section 301(2) of the IDRA.

However, the proposed four-week timeline will not apply to PDs filed in respect of debts set out in:

1. section 294(1)(b) of the IRDA, i.e. debts to which the debtor becomes subject after the DRP has commenced but before it has ceased by reason of any obligation incurred before the date of commencement, and any interest thereof; and
   
   
2. section 294(1)(c) of the IRDA, i.e. debts being the balance due from the debtor after the security in respect of a secured debt owing by the debtor has been realised as at the date of commencement.

The consultation was held from 9 June 2025 to 27 June 2025.

Click on the following link for more information:

• Public Consultation on the Proposed Legislative Amendments to the Debt Repayment Scheme (available at the MinLaw website at www.mlaw.gov.sg)