Learn what the Debt Repayment Scheme (DRS) in Singapore is, how it works, who qualifies, and how it helps you avoid bankruptcy.
Drowning in debt but not ready to face bankruptcy? Many Singaporeans find themselves stuck in the same stressful cycle.
The Debt Repayment Scheme (DRS) could be another alternative that helps you regain control without the heavy baggage of being declared bankrupt. Introduced in 2009, DRS is a court-backed, pre-bankruptcy repayment programme that allows individuals to repay unsecured debts over a structured period of up to 5 years. More importantly, it helps you avoid bankruptcy, along with its long-term restrictions, credit damage, and social stigma.
However it also comes with strict credit implications that you should carefully consider before proceeding. In this guide, we will break down what DRS is, who qualifies, how it works, its pros and cons, and whether it is truly the right solution for your financial situation.
How Does the Debt Repayment Scheme (DRS) Work?
Debt Repayment Scheme is administered by the Official Assignee (OA) and is designed to help eligible debtors repay their unsecured debts in a structured and manageable way. The OA assesses the debtor’s financial situation, including income, essential monthly living expenses, and overall debt obligations. Based on this assessment, the OA prepares a monthly repayment plan to reflect what the debtor can reasonably afford.
The debtor makes regular monthly repayments to the OA, who then distributes the funds to unsecured creditors. The repayment period can last up to 5 years. Upon successful completion, the scheme discharges the debtor from the unsecured debts without declaring them bankrupt.
While under DRS, creditors are generally restricted from commencing or continuing legal action without the Court’s approval. This provides temporary financial relief, prevents further enforcement actions, and helps limit the accumulation of additional interest and penalties.
Who Is Eligible to Apply for the Debt Repayment Scheme (DRS)?
To qualify for the DRS, applicants must meet the following criteria:
- Have total unsecured debts of $150,000 or less.
- Employed and earn a regular income.
- Not declare bankrupt or participated in the DRS within the past 5 years.
- Not operate as a sole-proprietor or a partner in any business firm.
Eligibility is assessed on a case-by-case basis, and failing to meet any of the above criteria may render an applicant ineligible for the scheme.
Advantages and Disadvantages of the Debt Repayment Scheme (DRS)
While the DRS offers a structured path to manage debts, understanding its benefits, limitations, and obligations is crucial before deciding if it is the right option for you.
DRS Advantages
- Avoid Bankruptcy: If you complete the DRS successfully, the Court will not declare you bankrupt.
- Simplified Repayment: Make a single monthly repayment, often at 0% interest, instead of juggling multiple creditors.
- Legal Protection: Creditors are generally barred from taking enforcement action without Court approval while you are on the plan.
- Greater Flexibility: Compared with bankruptcy, DRS allows more control over your finances and day-to-day life.
DRS Disadvantages
- Eligibility Limits: Only unsecured debts up to $150,000 qualify; larger debts or secured obligations, such as mortgages, are excluded.
- Credit Reputation: Your credit profile is affected during and after the DRS period, as there will always be a record.
- Strict Compliance Required: Missing payments or failing to cooperate with the OA can result in the resumption of bankruptcy proceedings.
Entering the DRS is a serious decision that impacts your finances, credit, and future borrowing limits, so you should not take it lightly.
Growing Misuse of the Debt Repayment Scheme (DRS)
In recent years, there has been a noticeable increase in borrowers exploiting the DRS through consultancy firms that encourage self-petitioning for bankruptcy, often at high fees in order to apply for DRS, with the intention of abusing the system. This misuse has led to irresponsible borrowing and attempts to reduce debts without genuinely resolving financial difficulties.
MinLaw is proposing a new criminal offence that targets the solicitation of bankruptcy applications for business purposes, while providing exemptions for regulated professionals and certain charitable entities. Offenders may be subject to fines of up to $10,000, imprisonment for up to three years, or both.
Caution: Do not be misled by consultancy firms promising a “debt-free” outcome by cheating the system. Only follow official guidance and verified legal advice to manage debts responsibly.
How to Apply for the Debt Repayment Scheme (DRS)?
You cannot directly apply for the Debt Repayment Scheme. The process begins only when you or a creditor files a bankruptcy application in the High Court.
If your total unsecured debts do not exceed $150,000, the Court may refer your case to the Official Assignee for an assessment of your eligibility for DRS. The OA will evaluate your income, employment status, total debts, and any previous bankruptcy or DRS history.
Based on this evaluation, the OA will create a monthly repayment plan tailored to your financial situation, ensuring that you can cover your essential living expenses while you repay your debts. You will then make monthly repayments until you fully clear your debts, helping you regain financial stability without going through full bankruptcy.
Being on DRS can affect your ability to secure new personal loans in Singapore. By completing your DRS responsibly, you can gradually restore your credit profile and improve future borrowing options.
Is the Debt Repayment Scheme (DRS) Right for You?
While the DRS can help manage unsecured debts in a structured way, it is not always the best or only solution. For some borrowers, less drastic alternatives may be more suitable and carry fewer long-term consequences.
1. Debt Management Programme (DMP)
Debt Management Programme offered by Credit Counselling Singapore (CCS) helps you repay debts more manageably by consolidating payments, negotiating lower interest, and providing professional budgeting support.
- Helps negotiate lower interest rates with creditors.
- Consolidates multiple repayments into a single, manageable monthly payment.
- Provides professional guidance on budgeting and financial planning.
- No formal record on your credit profile like DRS.
To qualify for a DMP, you will need to meet the following criterias:
- Unsecured debts totaling $10,000 or more.
- Unsecured debts with two or more creditors.
- Have sufficient repayment capacity to fully settle all unsecured debts within a reasonable timeframe.
2. Debt Consolidation Plan (DCP)
Debt Consolidation Plan combines multiple debts into a single loan, often with lower interest, simplifying repayments and helps you manage finances more effectively.
- Combines multiple debts into one loan, often with a lower interest rate.
- Simplifies repayment and may reduce total interest costs.
To qualify for a DCP, you will need to meet the following criterias:
- Two or more existing debts, such as credit cards, personal loans, or other unsecured loans.
- Have a stable income or sufficient cash flow to meet the consolidated monthly repayment.
- Lenders will typically assess your credit profile to ensure you are eligible for a debt consolidation loan.
Tip: Lenders in Singapore do not widely offer debt consolidation plans, but Loan City can help you find the most suitable debt consolidation loan to manage your debts effectively.
Take Control of Your Finances with Loan City
Navigating debt and repayment options can be complex, but you do not have to do it alone. Loan City helps Singaporeans explore and compare financial solutions, from low interest personal loans to debt consolidation plans, while guiding you through your loan eligibility in Singapore.
Whether you are recovering from debt or planning your next financial move. Loan City helps you make informed choices to secure the best loans in Singapore.
