Loan recovery in Singapore is understandably an uncomfortable and awkward topic to broach, especially if the debtor is a friend or family member. If he/she is not showing signs of repaying the loan, how then should you go about recovering the sums owed to you?
In this article, I will set out four options for you to consider, and where applicable, point out the pros and cons of each option. These options are:
Option 1: Ascertaining the Current Financial Situation of the Debtor
Instead of jumping the gun and requesting repayment right away, you may wish to find out the debtor’s current financial situation. It could be that he/she is struggling financially after losing their job during the pandemic, or that there are other loans requiring attention.
To better understand the circumstances the debtor is facing, fix a time to speak to him/her personally, so that you will be well-informed to decide on the next steps to take. For example, after hearing about the debtor’s situation, you could either choose to pursue the loan immediately, or let it slide for the time being.
If need be, you may even see a need to write off the loan entirely. These are not light decisions to be made and you should decide your next move only when you have a fuller picture of the situation.
Option 2: Renegotiating the Loan Repayment Terms
Following from the above option, you may wish to consider (re)negotiating a loan repayment plan with the debtor.
Important repayment terms to consider include the instalment amounts and the duration of the repayment term. Adopting such an approach is ideal as it allows parties to discuss and be on the same page in relation to the loan repayment. It could also create a win-win situation for both parties since it considers both parties’ wants and needs. Most importantly, it gives parties a chance to come up with a repayment plan that is realistic, feasible and reasonable, increasing your chances of recovering your loan successfully.
On this note, it is crucial to ensure that the agreed terms are put in writing. A properly drafted agreement would go a long way in preventing disputes or misunderstandings between parties from arising.
If you require a lawyer to assist in drafting an IOU to properly record the agreed terms, and/or wish to be advised on the legal implications of making an IOU, please do not hesitate to contact me.
Nonetheless, bear in mind that loan renegotiations may not be foolproof in helping you recover your loan. This is because whether you will be able to do so ultimately depends on the debtor’s ability and willingness to adhere to the agreed repayment terms. Furthermore, changing circumstances could require several rounds of renegotiations, creating uncertainty as to when the loan would be fully repaid.
Option 3: Sue to Recover the Debt
Another alternative to compel the debtor to pay the sum would be to commence legal proceedings against the debtor.
If you file a civil claim with the courts and successfully obtain judgment (i.e., a court order to compel payment) but the debtor still refuses or fails to pay up, you would have further recourse to enforcement proceedings. For example, the court may grant a Writ of Seizure and Sale (WSS) to authorise the Bailiff to seize the debtor’s property to pay the debt.
However, there are potential implications and limitations of suing your debtor family member or friend. Resorting to this method is likely to cause your relationship with the debtor to sour as parties will be put through legal proceedings. Furthermore, if the debtor simply has no money or assets, obtaining judgment and commencing enforcement proceedings would be a fruitless attempt on your end to get your money back.
You should also consider the cost-effectiveness of starting legal proceedings – would it make financial sense for you to fork out money to claim the sum owed? If you’re in doubt, do speak to a debt recovery lawyer to better understand your options.
You might also have heard about people hiring a debt collector to recover loans. However, hiring a debt collector comes with risks – they may carry out illegal acts to recover debts, and/or may not be transparent with their charges, which may turn out to be higher than what you find reasonable.
A debt recovery lawyer, on the other hand, would have the expertise and ability to assess your case and discuss debt recovery options with you to ensure that your position is protected.
Option 4: Commence Bankruptcy Proceedings to Recover the Debt
If you are aware of the debtor’s financial situation and/or know that there is a low likelihood of repayment, you may also consider making a bankruptcy application against the debtor. This method might work best for debtors who are facing extreme difficulties in managing their finances and require professional intervention.
There are certain requirements to be satisfied before the court would make a Bankruptcy Order. You can find out more in our other article on filing for bankruptcy. For instance, note that the debtor must owe at least S$15,000. You will also have to pay a deposit of $1,850 when making the bankruptcy application. However, this deposit can be recovered in the event the bankruptcy application is successful, and the debtor’s estate has enough funds.
Upon being declared a bankrupt, the debtor would be required to submit a Statement of Affairs to the Official Assignee (OA) and come up with a monthly contribution plan with the OA to pay off his/her debts (including the debt owed to you). You can then submit a proof of debt and receive dividends (i.e., assets/monies from the debtor’s bankruptcy estate) in repayment of your loan.
However, be prepared for the possibility of burning bridges with your debtor family member or friend if you were to choose to file a bankruptcy application against them. Being declared a bankrupt also has several major implications for your family member or friend, including restrictions on travelling overseas, being named in the bankruptcy register, and being put under the tight scrutiny of the OA.
Ultimately, in deciding how to best recover your loan from a family member or friend in Singapore, you would have to conduct a cost-benefit analysis of how much you value the relationship with the debtor.
The first two options would more likely enable you to preserve the relationship, but the same cannot be said for the latter two options. Apart from that, you would also have to consider the likelihood of successfully obtaining repayment under each of these options.
If you need further advice or assistance in recovering loans from your friend or family, please feel free to contact me. Having handled numerous debt recovery matters, I will be able to come up with the most feasible strategies based on your unique situation.