Fewer bankruptcy applications since start of plan to help people repay troublesome debts
By Francis Chan 21 June 2009
A new scheme designed to help people repay troublesome debt already appears to be reducing the number of bankruptcy applications here.
Since the Debt Repayment Scheme (DRS) kicked off just over a month ago, banks have been thinking twice before taking the ultimate measure against recalcitrant debtors.
They would rather find a middle path using the DRS, although some banks may initially be watching to see how the new system plays out.
This, of course, is good news for those struggling to make debt repayments or who have been living in fear of becoming a bankrupt.
The introduction of the DRS is timely, indeed, given the fallout from the financial market and economic turmoil, as many workers lose their jobs or face pay cuts.
Experts in bankruptcy law and financial planning that The Sunday Times spoke to say that if DRS is not abused, it can prove to be a helpful tool in assisting both debtors and creditors.
Bankruptcy brings with it social embarrassment and also dire legal consequences for individuals and families.
For example, many employers have a policy of sacking staff who have been declared bankrupt. Bankrupts also need permission from the Official Assignee (OA) before travelling abroad.
Observers say they have noted a marked drop in bankruptcy filings since the DRS got under way.
Under the scheme, which started on May 18, the High Court can refer debtors who owe less than $100,000 to the Insolvency and Public Trustee’s Office (IPTO) to be considered for the DRS.
If a debtor is employed and earning a regular income, he may now be able to avoid bankruptcy under the DRS.
The IPTO, however, must first determine if he is suitable for the scheme, which involves drawing up a repayment plan, for instance.
Before the DRS was introduced, anyone owing a debt of more than just $10,000 could legally be made a bankrupt and suffer the inevitable social stigma.
With the DRS, the IPTO can now help debtors owing less than $100,000 devise a repayment plan to pay their debts over a fixed period of time, typically between three and five years, without being labelled a bankrupt.
Official figures show that from May 18 to June 7 - just three weeks into the scheme - bankruptcy applications to the High Court fell to 90, of which 43 involved debts under $100,000.
This is a significant drop from January to April this year - the period before DRS kicked in - when applications had sometimes spiked to almost 300 cases a month.
Experts like Mr. Andrew Chan, a partner at law firm Allen & Gledhill, said it is still too early to see any long-term trend despite the dip in filings.
‘Early indications, however, are that creditors, including financial institutions, are reviewing the impact of the DRS and the early figures indicate that there is a drop in the number of bankruptcy filings,’ he said.
Many observers like him believe that banks are still adopting a wait-and-see attitude towards the DRS, and so they are filing fewer bankruptcy applications.
Mr. Leong Sze Hian, president of the Society of Financial Service Professionals, said creditors such as banks will want to see what the DRS can do for them - instead of taking the ultimate legal route.
He said: ‘Creditors may be holding back because they want to wait and see what exactly happens to the first cases that come up.’
Most observers, however, applaud the scheme for its relevance, especially in the current economic climate. But they caution that the DRS should not be seen as a way to avoid bankruptcy; it should instead be viewed as a contingency tool in debt management.
‘DRS would be good for people who don’t owe a lot, for example not more than $100,000. They may not be made a bankrupt, so they don’t have the problem where they cannot own any assets, and can travel only with permission,’ said Mr. Leong. ‘But at the same time, debtors may also end up spending with less worry of being made bankrupt.’
Retirement expert Anne Tay said bankruptcy does not benefit either the debtor or creditor, reinforcing the importance of DRS as a solution to debt repayment.
‘It is in the interests of all parties, both debtors and creditors, for an individual to pay back the liabilities as quickly as possible,’ said Ms. Tay, a vice-president in wealth management at OCBC Bank.
‘The DRS, being a debt repayment plan, seems to be a good alternative since bankruptcy applications will be withdrawn if a debtor is found suitable for the scheme.’
Mr. Leong said creditors stood to benefit even if the DRS did not work out in a given case.
‘When a debtor fails to pay up during the three to five year repayment period, the debtor can still be made bankrupt,’ he said. ‘So, in all likelihood, creditors may still recover even more in the long run, while for debtors, it may just be a delay in being made a bankrupt.’
Mr. Leong’s remarks drive home the point of how crucial it is for debtors not to abuse the scheme and take DRS as a escape route out of bankruptcy.
After all, when Parliament approved amendments to the Bankruptcy Act last January, to introduce the DRS, it was to provide a ‘non-court-based approach that gives the debtor a reasonable opportunity to pay off his debts over a period of time’.
The cap of $100,000 in debt was not arbitrarily pulled out of a hat but is based on historical data on debtors and the amounts they typically owe. Figures from the Law Ministry at the time showed that about 42 per cent of bankrupts had less than $100,000 in debt when they were declared so.
The average number of bankrupts per year was about 3,200 over the past five years. And based on those figures, the IPTO - which is the body charged with running the DRS - says about 1,300 debtors may be considered for the DRS every year.
Under the DRS, the IPTO aims to help achieve an outcome that will help both debtors and creditors.
IPTO believes that in suitable instances, DRS can serve as an alternative to bankruptcy, helping an employed debtor avoid losing his or her job.
Debtors can also expect to have help from the IPTO in terms of devising a plan or schedule to repay as much of the debt as possible with his income.
The repayment plan or process may include a realisation of the debtors’ assets and adjustments to lifestyle.
The debtor will also be required to propose a debt repayment plan, which must be approved by the OA and typically be completed within three to five years under the OA’s supervision.
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New scheme is turning out to be a LIFESAVER
Fewer bankruptcy applications since start of plan to help people repay troublesome debts
By Francis Chan
21 June 2009
A new scheme designed to help people repay troublesome debt already appears to be reducing the number of bankruptcy applications here.
Since the Debt Repayment Scheme (DRS) kicked off just over a month ago, banks have been thinking twice before taking the ultimate measure against recalcitrant debtors.
They would rather find a middle path using the DRS, although some banks may initially be watching to see how the new system plays out.
This, of course, is good news for those struggling to make debt repayments or who have been living in fear of becoming a bankrupt.
The introduction of the DRS is timely, indeed, given the fallout from the financial market and economic turmoil, as many workers lose their jobs or face pay cuts.
Experts in bankruptcy law and financial planning that The Sunday Times spoke to say that if DRS is not abused, it can prove to be a helpful tool in assisting both debtors and creditors.
Bankruptcy brings with it social embarrassment and also dire legal consequences for individuals and families.
For example, many employers have a policy of sacking staff who have been declared bankrupt. Bankrupts also need permission from the Official Assignee (OA) before travelling abroad.
Observers say they have noted a marked drop in bankruptcy filings since the DRS got under way.
Under the scheme, which started on May 18, the High Court can refer debtors who owe less than $100,000 to the Insolvency and Public Trustee’s Office (IPTO) to be considered for the DRS.
If a debtor is employed and earning a regular income, he may now be able to avoid bankruptcy under the DRS.
The IPTO, however, must first determine if he is suitable for the scheme, which involves drawing up a repayment plan, for instance.
Before the DRS was introduced, anyone owing a debt of more than just $10,000 could legally be made a bankrupt and suffer the inevitable social stigma.
With the DRS, the IPTO can now help debtors owing less than $100,000 devise a repayment plan to pay their debts over a fixed period of time, typically between three and five years, without being labelled a bankrupt.
Official figures show that from May 18 to June 7 - just three weeks into the scheme - bankruptcy applications to the High Court fell to 90, of which 43 involved debts under $100,000.
This is a significant drop from January to April this year - the period before DRS kicked in - when applications had sometimes spiked to almost 300 cases a month.
Experts like Mr. Andrew Chan, a partner at law firm Allen & Gledhill, said it is still too early to see any long-term trend despite the dip in filings.
‘Early indications, however, are that creditors, including financial institutions, are reviewing the impact of the DRS and the early figures indicate that there is a drop in the number of bankruptcy filings,’ he said.
Many observers like him believe that banks are still adopting a wait-and-see attitude towards the DRS, and so they are filing fewer bankruptcy applications.
Mr. Leong Sze Hian, president of the Society of Financial Service Professionals, said creditors such as banks will want to see what the DRS can do for them - instead of taking the ultimate legal route.
He said: ‘Creditors may be holding back because they want to wait and see what exactly happens to the first cases that come up.’
Most observers, however, applaud the scheme for its relevance, especially in the current economic climate. But they caution that the DRS should not be seen as a way to avoid bankruptcy; it should instead be viewed as a contingency tool in debt management.
‘DRS would be good for people who don’t owe a lot, for example not more than $100,000. They may not be made a bankrupt, so they don’t have the problem where they cannot own any assets, and can travel only with permission,’ said Mr. Leong. ‘But at the same time, debtors may also end up spending with less worry of being made bankrupt.’
Retirement expert Anne Tay said bankruptcy does not benefit either the debtor or creditor, reinforcing the importance of DRS as a solution to debt repayment.
‘It is in the interests of all parties, both debtors and creditors, for an individual to pay back the liabilities as quickly as possible,’ said Ms. Tay, a vice-president in wealth management at OCBC Bank.
‘The DRS, being a debt repayment plan, seems to be a good alternative since bankruptcy applications will be withdrawn if a debtor is found suitable for the scheme.’
Mr. Leong said creditors stood to benefit even if the DRS did not work out in a given case.
‘When a debtor fails to pay up during the three to five year repayment period, the debtor can still be made bankrupt,’ he said. ‘So, in all likelihood, creditors may still recover even more in the long run, while for debtors, it may just be a delay in being made a bankrupt.’
Mr. Leong’s remarks drive home the point of how crucial it is for debtors not to abuse the scheme and take DRS as a escape route out of bankruptcy.
After all, when Parliament approved amendments to the Bankruptcy Act last January, to introduce the DRS, it was to provide a ‘non-court-based approach that gives the debtor a reasonable opportunity to pay off his debts over a period of time’.
The cap of $100,000 in debt was not arbitrarily pulled out of a hat but is based on historical data on debtors and the amounts they typically owe. Figures from the Law Ministry at the time showed that about 42 per cent of bankrupts had less than $100,000 in debt when they were declared so.
The average number of bankrupts per year was about 3,200 over the past five years. And based on those figures, the IPTO - which is the body charged with running the DRS - says about 1,300 debtors may be considered for the DRS every year.
Under the DRS, the IPTO aims to help achieve an outcome that will help both debtors and creditors.
IPTO believes that in suitable instances, DRS can serve as an alternative to bankruptcy, helping an employed debtor avoid losing his or her job.
Debtors can also expect to have help from the IPTO in terms of devising a plan or schedule to repay as much of the debt as possible with his income.
The repayment plan or process may include a realisation of the debtors’ assets and adjustments to lifestyle.
The debtor will also be required to propose a debt repayment plan, which must be approved by the OA and typically be completed within three to five years under the OA’s supervision.
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