But being declared a bankrupt is not just about owing debts. It essentially means a debtor is insolvent and his status as a bankrupt becomes public information.
According to the Law Ministry, when a person is declared a bankrupt, he is publicly recognised to be insolvent and, as a result, is subject to restrictions under the Bankruptcy Act.
For example, in order to pay back his debts, the bankrupt is required to give to the Official Assignee, or OA, part of his income every six months, after deducting his family's expenses.
He also cannot leave Singapore without the permission of the OA or a court.
In addition, he cannot act as a director of a company or take part in the management of a company, except with the permission of a court.
'The individual may also not be able to hold certain positions,' said Mr Andrew Chan, a partner at law firm Allen & Gledhill.
These include a public accountant, a lawyer, a Member of Parliament or even to act as a trustee without the court's permission.
Mr Chan said with the DRS, debtors will hopefully be able to avoid the stigma of bankruptcy and its 'disabilities'.
Besides the inconvenience and embarrassment, bankrupts are also not allowed to set up new CPF Investment Scheme deposit accounts at banks.
'As an undischarged bankrupt, an individual will not be able to use his CPF funds for investment,' said Ms Anne Tay, vice-president for wealth management at OCBC Bank.
'If the individual has previously used his CPF monies to invest, he can continue to hold on to his investments, but he will not be allowed to make new ones.'
Ms Tay also explained that if the bankrupt sells off his existing investments, the proceeds will be credited into his CPF Investment Account.
However, some funds of these debtors remain protected from creditors.
She said: 'One point to note is that an individual's CPF investments and cash balance in his CPF Investment Account are protected from creditors' or the OA's claims, as long as they remain within the CPF Investment Scheme.'
