The Singapore Ministry of Law has launched a public consultation on some proposed personal insolvency amendments, and one in particular struck a nerve based on the disaster of BAPCPA: “MinLaw proposes to introduce a new criminal offence which criminalises the soliciting and canvassing, in the course of any business, of any person to make a bankruptcy application.” The proposed punishment is a S$10,000 fine, three years in jail, or both! The justification for this aggressive proposal is a supposed “increase in the number of debtor-initiated bankruptcy applications where debtors borrow irresponsibly to pay for … consultancy firms’ services in helping them apply for bankruptcy” with the supposed intent of “abusing the [debt repayment scheme] to obtain a discount off their debts.” Sound familiar? This is reminiscent of section 526(a)(4) of the US Bankruptcy Code, introduced in the 2005 disaster, that forbids “debt relief agencies” to “advise an assisted person … to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer” for preparing such a filing.

The workaround as I understand it in the US is to advise debtors to stop paying their revolving credit accounts for a month or two and apply the savings to cover petition preparation fees. Not incurring more debt “irresponsibly,” technically, but achieving the same result. I suspect this is still the standard advice. More importantly, this supposed problem strikes me as exceedingly unlikely in the Singapore context, and MinLaw offers no empirical evidence. Unlike in the US, where BAPCPA was designed to dissuade people from evading debt with a no-payment chapter 7 liquidation-and-discharge, Singapore has no such thing. A bankruptcy filing there leads to one of two options, both requiring significant administrative fees and repayment burdens: Debtors are routed to either a “debt repayment scheme” (modelled on our chapter 13), a five-year repayment plan negotiated with the Official Assignee (the supervisory trustee). Such plans are reported to pay a minimum of 70%-80% of outstanding debt, and at least as much as the alternative of bankruptcy, which also requires debtors to dedicate all of their disposable income (calculated in light of the OA’s views of a proper household budget) for 5-7 years–this after a major reform in 2016 introduced the notion of automatic discharge. So the fear in Singapore seems to be that debtors are being lured into schemes to subject themselves to high-cost procedures that keep them on subsistence budgets for at least five years in order to obtain at most a 20%-30% discount on “irresponsible” borrowing to pay consultancy fees for dealing with debt problems already so severe as to render them insolvent. Color me skeptical–even more so than I was in 2005 with the introduction of our “debt relief agency” provisions. The problem on which MinLaw should concentrate is getting insolvent debtors into the process to address their stifling debt problems, not avoiding a supposed flurry of schemers facing years of austerity budgets to avoid an already patently unserviceable debt burden.

At least the MinLaw proposal excludes “[r]egulated professionals, in particular lawyers, accountants and financial advisers, as well as charitable entities that are institutions of a public character.” The BAPCPA “debt relief agency” rules did not include such an exclusion (remember Milavetz). But if the supposed problem of debtors borrowing “irresponsibly” to pay for bankruptcy advice is abusive, why include such an expansive exclusion? Either this is a problem and no one should be advising debtors in this way, or it isn’t. I’m team “isn’t”.