Ministry to Propose Laws Targeting Consultancy Firms That Exploit Debt Repayment Scheme

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

- David Sun

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

On June 9, MinLaw said there has been an increasing number of debtors engaging 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," the ministry said.

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 them 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," MinLaw said.