TODAYonline

Avoiding bankruptcy

By mid-2009, scheme to help Singaporeans stave off stigmaof financial ruin could be in place

Tan Hui Leng

huileng@mediacorp.com.sg

NOT so long ago, they spent lavishly on credit or took out consumer loans. But as the financial crisis takes its toll, with jobs and wages suddenly less secure and losses on the stock market, more Singaporeans could face bankruptcy.

By the middle of next year, a new scheme — first mooted over a year ago — could help them stave off such personal ruin, and the stigma it brings.

Last month, the Law Ministry completed its public consultation on changes to the Bankruptcy Act that would bring into effect the Debt Repayment Scheme (DRS).

The proposal will be put before Parliament. “Subject to the Bill being passed, we plan to implement the Debt Repayment Scheme by the middle of next year,” said the Law Ministry in response to queries from Today.

Creditors, also, can expect a win-win arrangement from the scheme which caters for personal debts not exceeding $100,000. The financial institutions are assured recovery of an amount no less — and may even end up with more — than what they would have got if the debtor declared bankruptcy.

How it works is that the court may adjourn a bankruptcy application against a debtor for up to six months, so that he or she can be considered for the DRS. The debtor proposes a repayment plan (which must be completed within five years) and a case administrator, appointed by the Insolvency and Public Trustee’s Office, then approves it after assessment and consulting with the creditors.

For the period of the plan, no creditor can take action against the debtor for outstanding unsecured debts, except with the court’s leave.

According to a consultation paper presented last year, debtors must attend courses to improve their financial management skills, and provide regular information on their income and expenses to the administrator.

To provide reasonable payment to his creditors, a debtor “may, for example, be requested to downgrade his lifestyle”, the paper stated.

Welcoming this scheme, president of Credit Counselling (CCS) Singapore Mr Kuo How Nam nonetheless asked if its implementation should be stepped up — especially in light of the current difficulties.

“I’m hoping they can get this up by March or April,” he told Today. “There’s a need to have this up and running. Hopefully the sooner you implement it, the more you can save from bankruptcy.”

Statistics from the Monetary Authority of Singapore show that total debts to individuals and professionals were up 10 per cent for the past12 months. As of August, this amount was $112 billion. Credit card rollover debt has also ballooned to $3.3 billion, an increase of $296 million over the last twelve months.

But not all are eligible for the DRS. A debtor who is a sole proprietor or a partner in a business is disqualified, as is any person who — within the prior five years — had been discharged from bankruptcy or was under a similar scheme.

For someone like Mr Morgan Lim, who had to downgrade from an executive flat to a three-room flat to pay his creditors, the DRS could have been helpful.

The 54-year-old was made bankrupt in the late 1990s when his foreign partner left him saddled with debts from a furniture business here. Owing around $150,000, he took some three years to discharge himself.

“As a bankrupt, there are a lot of restrictions, particularly in trying to find a job,” he told Today. “In a corporate set-up, they don’t really want to have anything to do with bankrupts.”

After more than a year of futile corporate job-hunting, Mr Lim settled himself as a driver — where “all you need to have is your driver’slicence”. He is now in the debt recovery business.

The DRS could save debtors like him the stigma of bankruptcy and thus perhaps, make it easier for them to find employment and work off their debts.

The one concern Mr Kuo has, however, is that debtors may be less inclined to use the CCS’ existing Debt Management Programme, which helps them pay off their full debt. Participants are subject to criteria such as having surplus income to pay the dues.

As the DRS allows for partial payment of the debt, he said: “The concern is that people will take the easy way out.”

“What they don’t realise is that under the DRS, there is a stigma even though you are not bankrupt, because you have chosen an alternative which is easier and from which the bank will lose money,” he said, referring to the individual’s credit records available to all financial institutions.

“It’s not as honourable as coming to CCS and paying the banks in full.”