SINGAPORE - Laws around a scheme to help individuals avoid insolvency may be tightened, with authorities targeting firms that encourage individuals to borrow money and file for bankruptcy to get a discount off their debts.

These consultancy firms are looking to abuse the Debt Repayment Scheme (DRS), a pre-bankruptcy scheme administered by the Ministry of Law (MinLaw).

MinLaw on June 9 said there has been an increasing number of debtors who engage the services of consultancy firms which encourage debtors to self-petition for bankruptcy with the objective of being placed on the DRS.

“This is done not with the intention of being adjudged a bankrupt, but with the intention of abusing the DRS to obtain a discount off their debts,” said the ministry.

A debtor can avoid being made bankrupt if he is put on the DRS, but he must file for bankruptcy first before being considered for the scheme.

MinLaw said that the consultancy firms are charging debtors sizeable fees and encouraging debtors to borrow money from creditors to pay for their services.

“Due in part to this trend, there has been an increase in the number of debtor-initiated bankruptcy applications where debtors borrow irresponsibly to pay for such consultancy firms’ services in helping them apply for bankruptcy,” said MinLaw.

The Straits Times in March reported that more than half of the bankruptcy applications in 2024 were made by the debtors themselves - the fifth consecutive year since 2020 that the number of self-filed applications was higher than the number of applications by creditors.

MinLaw data showed that 2,928 bankruptcy applications were filed by debtors in 2024. That represents 59 per cent of all applications made that year.

The DRS is a voluntary debtor-driven scheme intended to help wage-earning debtors with relatively small debts avoid bankruptcy, while helping creditors receive higher repayments than what they would otherwise receive in the event of insolvency. 

Under the DRS, debtors with unsecured debts not exceeding $150,000 can enter a debt repayment plan over a fixed period of time of not more than 5 years with their creditors and avoid bankruptcy.

When the debtor meets his financial obligations under the DRS, he will be released from his debts.

MinLaw said it noticed an increasing...