Out Of The Debt Trap, Step By Step - Cheap Secured Loans

23 April 2007

The debts are piling up: Consumer loans, personal loans, overextended credit facilities. A creditor demands to be repaid, the debtor is unable to do so ... a bankruptcy application is filed.

Soon, the Court hearing such an application will adopt a new practice of adjourning the matter for six months. Except with the Court's leave, no creditor can take action against the debtor for outstanding unsecured debts.

This will be the scenario in the new bankruptcy regime, according to the Ministry of Law and the Insolvency & Public Trustee's Office (Ipto), which have released details of the proposed debt repayment scheme (DRS) announced last month in Parliament.

The two Government bodies are now seeking public feedback on the scheme, which entrusts the power to manage debts of less than $100,000 to a case administrator appointed by Ipto.

This power includes the ability to investigate the acts, conduct, assets, liabilities and financial condition of the debtor as well as to sell the debtor's assets, if need be.

The scheme is designed to stave off bankruptcy — and its stigma — for suitable income earners.

Last year, 62 per cent of the 2,983 people declared bankrupt had debts not exceeding $100,000.

Under the proposed scheme, debtors must attend courses to improve their financial management skills. They must provide regular information relating to their income and expenses to the administrator until they have repaid their debts.

"A debtor is expected to adjust his lifestyle and habits in order to provide reasonable payment to his creditors. He may, for example, be requested to downgrade his lifestyle," wrote the two government agencies in their consultation paper.

The administrator will assess the "best interests of creditors" and the "availability of disposable income of the debtor" to decide on the repayment plan. An independent panel will hear any appeals.

Not all debtors will qualify for the scheme. Any person who had been discharged from bankruptcy, or was under a similar scheme, within five years prior to the start of an intended DRS, is disqualified, for example. A debtor who is a sole proprietor, a partner in a business or in business debt is disqualified, too.

The scheme is applicable only to personal debts and allows debtors to continue servicing mortgages or other necessary secured loans. However, secured creditors can file a claim under the DRS if they seize the collateral, and there is outstanding debt due.

As part of the scheme, the Official Assignee will maintain a public database of cases.

Credit Counselling Singapore president Kuo How Nam told Today the not-for-profit organisation would be keen to work with Ipto on the scheme, especially as case administrators. "We welcome the scheme," he said. "It's like an intermediate step before bankruptcy – a genuine attempt to assess a person's ability to pay. It also benefits creditors, who don't usually get back much in bankruptcy cases."

The scheme's procedures included ideas from organisations such as the Law Society.

Resources: http://www.channelnewsasia.com