SINGAPORE - TikTokers advertising themselves as debt consultants are charging debtors thousands of dollars to exploit a government bankruptcy avoidance scheme.

Checks by The Straits Times showed that there are at least a dozen such consultants on the social media platform.

One consultant said that for a fee, he can guide debtors through the Debt Repayment Scheme (DRS) to help them secure a discount on their debt.

He said he had helped a client clear a debt of more than $100,000 with a repayment of only one-third of what he owed, or $35,000.

"That's $65,000 savings, no shiok meh? (sic)," the man added.

ST understands such firms charge debtors between $1,000 and $5,000 for their services.

Credit Counselling Singapore (CCS), a non-profit organisation and registered charity, said it has seen a number of debtors falling prey to exploitative debt consultancy firms.

CCS general manager Tan Huey Min said it had a debtor who approached the organisation after he paid a consultancy firm in hopes of getting on the DRS.

The man had debts of more than $150,000, above the threshold for the bankruptcy avoidance scheme.

Ms Tan said that when the debtor was deemed ineligible for the scheme, the debt consultancy firm did nothing to help him.

"When these debtors go to some of these firms, they are told they have to first fork out several thousand for their services.

"They already have no money, where do you expect them to find a few thousand?" she said.

"What some of them have done is unethical, because they call themselves a consultancy firm, but they don't provide comprehensive information even though they claim to be professionals.

"Then you tell people about the DRS to lure them and get them to borrow even more money to pay you, encouraging them to be irresponsible. It is not right," she added.

The DRS is a pre-bankruptcy programme administered by the Ministry of Law (MinLaw) that the Government introduced in 2009.

The voluntary scheme aims to help working debtors avoid bankruptcy, and help creditors get higher repayments than 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 of not more than five years and avoid bankruptcy.

The structured repayment plan is under the supervision of an Official Assignee (OA), an officer of the court appointed by the Law Minister. When the debtor meets his financial obligations under the DRS, he will be released from his debts.

MinLaw said on June 10 that it has noticed an increasing number of debtors engaging the services of consultancy firms that encourage debtors to self-petition for bankruptcy with the objective of being placed on the DRS.

The ministry said this puts the debtor at risk of being pushed further into debt or being declared bankrupt, as they are not guaranteed to be eligible for the DRS.

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.

It was the fifth consecutive year since 2020 that the number of self-filed applications was higher than applications by creditors.

The firms are also encouraging debtors to borrow even more money from creditors to pay for their services, causing them to rack up more debt, MinLaw said.

The ministry is proposing to make it an offence for debt consultancy firms to solicit for clients to file for bankruptcy, among other proposals.

Not regulated

Ms Tan noted that the MinLaw proposal would exempt professionals like lawyers and accountants and charities like CCS. This is because such entities are regulated.

"Debt consultancy firms are not regulated. They are profit-making (organisations), and may not be thinking about the best interests of debtors," said Ms Tan. "The DRS is meant for genuine debtors who are sincere but unable to make payments under their creditors' existing terms and conditions. It is not meant to be abused to circumvent making full repayment of debts."

Lawyer Tris Xavier, an associate director at Yuen Law, said there have been cases of debt consultancy firms filing proofs of debt against their own clients to claim money owed to them by these debtors.

He said: "We have seen some cases where the debt consultancy firms in question filed proofs of debt against the debtor, which dilutes the repayment to other legitimate creditors."

Mr Xavier said debtors do not receive proper advice from some debt consultancy firms.

He added: "There is a risk that the debtor might end up in bankruptcy. Individuals may also fail out of the DRS if they do not make regular payments, and might end up in bankruptcy anyway."

Debtors who file for bankruptcy on their own in the High Court have to pay $1,850 as a deposit. This will not be refunded if the application is successful.

The High Court will then determine if these individuals should be referred to the OA, to be assessed for their suitability for the DRS.

Debtors referred for the DRS have to pay preliminary fees of $600 for assessment and administrative costs.

The consultants on TikTok falsely claim that a debtor can apply for the DRS "to solve all the issues", with one even claiming the scheme could help settle their debts "three times faster and save thousands of dollars". Another claims "100 per cent approval during application".

On its website, MinLaw says it is not possible to directly sign up or apply for the DRS.

ST reached out to three debt consultancy firms, which said they are supportive of MinLaw's proposals but argued against a blanket rule for the industry.

A spokesman for Viv Associates said: "We do hope MinLaw will consider making room for selected debt consultancy firms, those with a strong compliance history and client care infrastructure, to be exempted from the blanket restriction. Ultimately, this is about protecting the public and preserving access to quality guidance. We believe that balance is possible and necessary."

Two of the firms contacted said that debtors are free to go ahead and file the paperwork themselves if they so wish.

A spokesman for EDUdebt said: "Our services exist for debtors who prefer professional support with their DRS documentation. We offer full transparency - and our fees only apply after the debtor independently decides to file for bankruptcy and is considered for DRS by the court."

Aside from making it unlawful for debt consultancy firms to solicit for business in such a manner, MinLaw is also making two other proposals. These are to add a new ground of failure for individuals who incur debts with no reasonable ground of expectation of being able to pay, and to impose a four-week time limit for creditors to file their proofs of debt under the DRS.

Members of the public are invited to provide their feedback on the proposed key amendments after viewing the full consultation paper at https://go.gov.sg/public-consult-drs

Those who wish to submit their views and feedback may do so by June 27 at https://go.gov.sg/drs-proposed-legis-consult 

This article was first published in The Straits Times. Permission required for reproduction.