Recovering Debt in Singapore

Updated: Feb 28, 2023

Creditors (also known as money lenders) often worry about whether the borrower will pay back the debt. After all, debt recovery can be a tedious and frustrating process. Despite phone calls, emails and letters to borrowers, creditors may often not get a response. It may be equally futile to look for them in their home or workplace. If the borrower can be contacted, a common saying is that the borrower has no money now and will pay you back later.

Frustration sets in and firmer action is called for. Filing for bankruptcy is perhaps the most intuitive reaction of all creditors. This is also known as the "in court" recovery option. However, there are other "out-of-court" recovery options that may be more effective. This article outlines the options available to creditors and explains factors to consider when choosing a debt recovery route.

Out-of-Court Options

In addition to taking the matter to court, creditors can consider other cost-effective "out-of-court" debt recovery options.

(1) Negotiation a settlement

Possibly the most cost-effective option, the creditor may choose to renegotiate the repayment terms with the debtor, possibly by offering a longer repayment period or a discounted lump sum payment. The key is to keep the area open for potential agreements, and candid communication can ultimately pave the way for a mutually beneficial resolution without additional legal costs. Understandably, this may not always be an option, as the relationship between the parties may be strained by this point. Still, it's the creditor's best chance of getting close to or even full repayment.

(2) Hiring a debt collection agency

Creditors who don't have the time to collect debts themselves can hire a debt collection agency to help. Creditors who choose this option are wise to make inquiries to ensure that the agency they engage is abiding by the law. This is to ensure that the debt recovery process is not hindered by illegal actions taken and to minimize the risk of creditors being prosecuted for the actions of debt collectors.

(3) Letter of Demand

A creditor with evasive debtor can hire a lawyer to send the debtor a Letter of Demand (“LOD”) advising him of the consequences of not paying. The LOD can emphasize to the debtor the seriousness of the situation, which may prompt him to respond. Although the LOD is not the same as the SD, if the matter is brought to court, the LOD can be used as evidence in future debt recovery.

In-Court Options

There are several options for recovering debts in court, such as filing a claim in the Small Claims Tribunal (“SCT”) or commencing civil or bankruptcy proceedings. The best choice will depend on factors such as the amount owed, the cost you are willing to incur to recover the debt, and the state of your relationship with the debtor. These options and factors to consider are discussed below.

(1) Small Claims Tribunal

There is an option to file a claim at the SCT when less than SGD20,000 is owed to the creditor. Creditors can file claims online through the Community Justice Tribunals System through SingPass or CorpPass. The SCT provides a relatively quick and inexpensive dispute resolution forum for creditors who are owed a relatively little sum. Decisions made by the SCT are enforceable like court judgments. However, the SCT can only hear claims for debts arising from circumstances described in Schedule of the Small Claims Tribunals Act, which include debts arising from supply contracts or leases not exceeding two years.

(2) Civil proceedings

Alternatively, the creditor can file a claim in court. Unsecured creditors usually recover their debts by instituting legal proceeding in civil court. Claims exceeding SGD250,000 will be filed in the General Division of the High Court of Singapore, while claims below SGD250,000 will be filed to the Singapore State Courts of Singapore.

Due to the high cost of court proceedings, this option is not economically worthwhile for creditors with relatively small amounts owed and should only be considered if it is not possible to bring a claim to the SCT. Creditors who successfully prove their debt will receive a judgment, which then needs to be enforced. Can be enforced by a Writ of Seizure and Sale ("WSS") and/or a garnishee order.

WSS is an appropriate enforcement option if the debtor has property of sufficient value to pay the debt. The WSS authorizes court officials (also known as bailiffs) to seize and sell debtor property. Common types of forfeited property include valuable jewelry or vehicles owned by the debtor. After the seizure, the property is sold and the proceeds are used to pay off the debt. For more information on this process, visit the Supreme Court website.

On the other hand, a garnishee order can be a useful tool in situations where the debtor is owed money by a third party. A creditor can obtain a garnishee order against a third party who owes money to the debtor, forcing the third party to pay the debt directly to him instead of to the debtor. To put it simply, if A owes money to B, and B owes money to C, C can directly collect the debt from A, of course, the premise is that the debt owed by A to B is due.

(3) Bankruptcy proceedings

If the debt exceeds SGD15,000, there is an option to initiate bankruptcy proceedings against the debtor. Under this option, however, creditors typically recover only a small portion of the debt because the debtor's assets must be distributed among all creditors. Therefore, it is crucial to assess the debtor's financial situation before beginning such procedures, as other options, such as setting up an installment payment plan with the debtor, may lead to greater recovery.

The Bankruptcy Act provides that creditors can only file bankruptcy applications against debtors who reside or own property in Singapore, or who reside or carry on business in Singapore within one year of the filing. Once the application is made, all interest on all debts owed ceases to accrue and the applicant cannot initiate other legal proceedings against the debtor for that debt. To obtain an approved application, the applicant must demonstrate the debtor is unable to pay through unsatisfied statutory demand (“SD”), judgment debt, or evidence that the debtor has left Singapore with the intent to evade payment.

In most cases, an unsatisfied SD is the most effective way of showing a debtor's inability to pay. The SD is a formal written notice demanding payment and informing the debtor that bankruptcy proceedings will begin if the debt is not paid by a specified deadline, usually 21 days after the SD date.

If the debtor receives a statutory demand from a creditor, the creditor can apply to make him bankrupt if he does not comply with the demand.

Creditors may start bankruptcy proceedings against the debtor if he does take comply with statutory demand (this usually includes paying off debts) after receiving a statutory demand.

The debtor cannot ignore statutory demands. Creditors can file bankruptcy against him even if he refuses to accept or respond to the document.

If the debtor wishes to avoid bankruptcy, he can contact the creditor or the creditor's attorney and arrange to settle his debt. Contact information for the creditor is listed on the statutory demand. He should do so within the time frame set out in the statutory demand.

Creditors should also be aware that bankruptcy filings involving debts valued at less than SGD100,000 will automatically be referred by the court to an Official Assignee (“OA”)—the court officer responsible for administering the debtor’s assets in bankruptcy—for consideration of the debtor’s Debt Repayment Scheme ("DRS") suitability.

DRS is a pre-bankruptcy scheme administered by the OA that sets out a repayment plan to ensure debt is paid over 5 years. As a result, creditors may find themselves in a better position under DRS, as the debtor will be obliged to pay all owed debts according to the established installment payment plan. Debtors qualify only if their debts do not exceed SGD100,000 and they are not bankrupt or have not entered into a DRS within the past 5 years. Also, the debtor cannot be a sole proprietor or a partner in a partnership.

If the debtor is found not suitable for the DRS regime, the court will hear the bankruptcy application. If the court is satisfied that the debtor is unable to pay its debts, a bankruptcy order will be issued. The debtor will then be declared bankrupt and the OA will take over all his financial affairs, including paying off his debts. The OA will determine the target repayment amount based on the value of the debtor's assets and his financial ability to contribute to the repayment plan - which may mean that the debtor is only paying part of the debt. Once the debtor has repaid the target amount, he will be deemed discharged from all debt obligations, meaning that creditors cannot sue for the balance. It is worth noting that notwithstanding the foregoing, the secured creditor will still be able to enforce its security for its full value (for example, by selling the property or goods it holds secured), which may mean that the secured creditors will still obtain full repayment of their loans.

Creditors consider this option only as a last resort since creditors may not be able to get back all the money owed by the debtor in bankruptcy. However, given the personal constraints that bankruptcy brings, the threat of bankruptcy may sometimes persuade the debtor to deal with his debts. While some debtors may simply ignore such threats, creditors may still consider using the threat of litigation as a tool to compel debt repayment.

As mentioned above, there are several options for debt recovery, ranging from tough options like initiating bankruptcy proceedings to cooperative options like negotiating with debtors. However, creditors should be aware that while there are options, it is often difficult to fully recover the debt because the debtor often simply does not have enough money to pay it back. The difficulty of debt recovery highlights the importance of conducting due diligence before lending money to potential debtors and, where possible, asking for guarantee before extending any loans. These precautions will save creditors the hassle of undergoing the burdensome process to collect debts later on.